Explanation:
Choice "d" is correct. For a particular entity's FS to be presented fairly in conformity with GAAP,
it is not required that the principles selected be applied on a basis consistent with those followed
in the prior year, merely that any changes in accounting principle be properly accounted for and
disclosed. Choice "a" is incorrect. The principles selected must be appropriate in the
circumstances for the particular entity. Choice "b" is incorrect. The principles selected must
reflect transactions in a manner that present the FS within a range of acceptable limits. Choice
"c" is incorrect. The principles selected must present information in the FS that is classified and
summarized in a reasonable manner.
QUESTION: 161
An auditor has been asked to report on the balance sheet of Kane Company but not on the
other basic financial statements. The auditor wil have access to all information underlying the
basic financial statements. Under these circumstances, the auditor:

A. May accept the engagement because such engagements merely involve limited reporting
objectives.
B. May accept the engagement but should disclaim an opinion because of an inability to apply
the procedures considered necessary.
C. Should refuse the engagement because there is a client-imposed scope limitation.
D. Should refuse the engagement in accordance with generally accepted auditing standards.

Answer(s): A
Explanation:
Choice "a" is correct. The auditor may accept the engagement because there is no scope
limitation, merely a limited reporting objective. It is acceptable to give an opinion on one FS and
not report on the other FS, if the scope is not limited.
Choices "b" and "c" are incorrect. The client is not imposing any audit scope limitations. Choice
"d" is incorrect. A limited reporting objective is not a departure from GAAS.
QUESTION: 162
If an accounting change has no material effect on the financial statements in the current year,
but the change is reasonably certain to have a material effect in later years, the change should
be:

A. Treated as a consistency modification in the auditor's report for the current year.
B. Disclosed in the notes to the financial statements of the current year.
C. Disclosed in the notes to the financial statements and referred to in the auditor's report for
the current year.
D. Treated as a subsequent event.

Answer(s): B
Explanation:
Choice "b" is correct. If an accounting change does not have a material effect on the FS of the
current year, it will be disclosed in the notes to the FS for the current year, but no modification of
the auditor's report is necessary. Choices "a" and "c" are incorrect. If the change in accounting
principle were material for the current year, it would be treated as a consistency modification in
the auditor's report for the current year. Since there is no material effect in the current year, no
modification to the auditor's report is required. Choice "d" is incorrect. A change in accounting

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