Final answer:
A proposed adjustment to financial statements that is not made by the client is known as a passed adjustment. Auditors must then evaluate how such unmade adjustments affect the audit opinion, particularly if they are material.
Step-by-step explanation:
A proposed adjustment to the financial statements that the client decides not to make is called a passed adjustment. These adjustments are usually identified during an audit or review of financial statements. The decision not to make the adjustment could be because the client believes that the impact of the adjustment on the financial statements is not material, or it may not agree with the auditor's assessment.
When a client passes on an adjustment, the auditor must consider the implications on the audit opinion. If the adjustment is material and the client refuses to amend their financial statements, the auditor may be required to qualify the audit opinion or even express an adverse opinion if the misstatement is pervasive.
Overall, the process of handling passed adjustments requires careful consideration of both the materiality of the proposed entries and the ethical standards governing financial reporting and auditing.