Final answer:
An auditor should look for indicators like inconsistent financial statement presentation, inadequate disclosures, and non-standard accounting methods to identify departures from GAAP. Inappropriate revenue recognition, misstatement of assets and liabilities, and failure to write down impaired assets are specific signs that may indicate these departures. Auditors must ensure financial statements accurately reflect the company's financial position according to GAAP.
Step-by-step explanation:
An auditor should expect certain indicators that might suggest a departure from Generally Accepted Accounting Principles (GAAP). These indicators could include inconsistencies in financial statement presentation, unusual or complex transactions that lack transparent disclosures, and the use of non-standard accounting methods without proper justification. When conducting an audit, auditors must investigate any irregularities or discrepancies that could indicate that the financial statements do not conform to GAAP.
Some specific signs of a departure from GAAP might include inappropriate revenue recognition, such as recognizing revenue before the completion of services or delivery of goods. Over- or under-statement of assets and liabilities, failure to write down or write off impaired assets, and inadequate disclosure of financial information can also be concerning indicators. The auditor should also be alert to changes in accounting policies that are not driven by changes in the underlying business or for which there is no sound rationale.
Ultimately, it is the responsibility of the auditor to ensure that the financial statements present a true and fair view of the company's financial performance and position. This involves not only identifying GAAP departures but also understanding the impact these departures could have on the financial statements and the associated risk of material misstatement.