The following questions relate to the auditor's responsibility for reporting on inconsistency of application of accounting principles. Select the best response. 

a. Raider uses the last-in, first-out method of valuation for half of its inventory and the first-in, first-out method of valuation for the other half of its inventory. Assuming the auditor is satisfied in all other respects, under these circumstances the auditor will issue a(n) 

1. Opinion qualified due to inconsistency. 

2. Unqualified opinion with an explanatory paragraph. 

3. Qualified or adverse opinion depending upon materiality. 

4. Unqualified opinion. 

b. Which one of the following would require a consistency explanatory paragraph in the auditor's report? 

1. Changing the salvage value of an asset. 

2. Changing the presentation of prepaid insurance from inclusion in "other assets" to disclosing it as a separate line item. 

3. Division of the consolidated subsidiary into two subsidiaries which are both consolidated. 

4. Changing from consolidating a wholly owned subsidiary to carrying it on the equity basis. 

c. Which of the following should have a consistency explanatory paragraph in the auditor's report, whether or not the item is fully disclosed in the financial statements? 

1. A change in accounting estimate. 

2. A change from an unacceptable accounting principle to a generally accepted one. 

3. Correction of an error not involving a change in accounting principle. 

4. A change in classification.

d. If a client makes a change in accounting principle that is inseparable from the effect of a change in estimate, this material event should be accounted for as a change in 

1. Estimate and the auditor would include a consistency explanatory paragraph. 

2. Principle and the auditor would include a consistency explanatory paragraph. 

3. Estimate and the auditor would not modify the report.

4. Principle and the auditor would not modify the report.

e. A company has changed its method of inventory valuation from an unacceptable one to one in conformity with generally accepted accounting principles. The auditor's report on the financial statements of the year of the change should include 

1. No reference to consistency. 

2. A reference to a prior period adjustment. 

3. An additional paragraph explaining the change. 

4. A justification for making the change and the impact of the change on reported net income.