Assume that the following separate circumstances are sufficiently material to cause a departure from the auditor's standard report.

1. Change from LIFO to FIFO, necessitating a restatement of prior years statements.

2. Other auditors, Jones and Jones, audited a subsidiary company that accounts for 5 percent of the consolidation's total assets and 10 percent of total revenues.

3. The client is the defendant in a major litigation suit that has not been settled at the statement date.

4. Replacement cost is used in the basic financial statements for inventories, cost of sales, plant assets, and depreciation.

5. The continuation of the company as a going concern is in doubt.

6. Pensions are properly recorded, but the total pension expense of \(\$ 532,000\) and the company's policy to fund accrued pension costs are not disclosed in the notes as required by APB Opinion No. 8.

7. The fact that 25 percent of the company's inventories result from related party transactions is disclosed in the notes to the statements but the auditor decides to emphasize this fact in the audit report.

8. Finished goods stored in a foreign country were not observed or test counted. The items constitute 10 percent of ending inventory.

9. The lease provisions of FASB Statement No. 13 were not properly followed in accounting for leases.

10. Note \(\mathrm{X}\) of the financial statements indicates that the company changed from the straight line to the sum of the years' digits method in computing depreciation.

Required:

a. Indicate the type of circumstance and its effects on the auditor's standard report using the format illustrated on page 626 of this chapter.

b. Prepare the parts of the auditor's standard report that are changed by each circumstance.