When an entity changes its method of accounting for income taxes, which has a material effect on comparability, the auditor should refer to the change in an explanatory paragraph added to the auditor’s report. This paragraph should identify the nature of the change and
- Explain why the change is justified under generally accepted accounting principles.
- Describe the cumulative effect of the change on the audited financial statements.
- State the auditor’s explicit concurrence with or opposition to the change.
- Refer to the financial statement note that discusses the change in detail.