Final answer:
An adverse report is likely for a diamond mining company marking its equipment to expected market values rather than GAAP, as it implies material misrepresentation in financial statements.
Step-by-step explanation:
When an audit reveals that a diamond mining company's equipment has been marked up to the owner's expectation of market values, rather than based on historical cost or other accepted accounting principles, the auditors will likely issue an adverse opinion. This is because the financial statements would not be presented fairly according to generally accepted accounting principles (GAAP). An adverse report indicates that the financial statements might mislead the users of the financial statements and that the misrepresentation is material and pervasive. The auditor's report essentially states that the financial statements do not accurately reflect the company's financial position.