Final answer:
Justification for a material departure from GAAP that an auditor believes is justified belongs in a paragraph before the opinion paragraph in the audit report, often referred to as an explanatory or emphasis-of-matter paragraph.
Step-by-step explanation:
When the financial statements contain a material departure from GAAP that the auditor believes is justified, the justification should appear in a paragraph added before the opinion paragraph. This addition is known as an explanatory paragraph or an emphasis-of-matter paragraph. It highlights a significant issue to the readers of the financial statements which, although not misleading, differs from the standard application of GAAP.
Typically, the explanatory paragraph will directly precede the opinion paragraph of the audit report, allowing the auditors to provide context and justification for the departure. This ensures that users of the financial reports understand the nature of the departure and the reasons the auditors believe it is justified, while still presenting the auditors' overall opinion on the financial statements.