Various types of accounting changes can affect the second reporting standard of GAAS.This standard reads:“The report shall identify those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.”

Required

a. Briefly describe the rationale for the standard and the auditor’s responsibility in adhering to the standard.

b. For each of the changes listed here, briefly indicate the type of change and its effect on the auditor’s report.

1. A change from the completed-contract method to the percentage- of-completion method of accounting for long-term construction contracts

2. A change in the estimated useful life of previously recorded fixed assets (The change is based on newly acquired information.)

3. Correction of a mathematical error in inventory pricing made in a prior period

4. A change from full absorption costing to direct costing for inventory valuation

5. A change from presentation of statements of individual companies to presentation of consolidated companies

6. A change from deferring and amortizing preproduction costs to recording such costs as an expense when incurred, because future benefits of the costs have become doubtful (The new accounting method was adopted in recognition of the change in estimated future benefits.)

7. A change from amortizing goodwill to testing for impairment each year (The change was in response to an accounting pronouncement from the FASB.)

8. A change to include the employer’s share of FICA taxes as retirement benefits on the income statement from including it in other taxes.