Final answer:
A material departure from GAAP during an audit examination would result in the auditor issuing a qualified or adverse opinion on the public entity's financial statements. The auditor will determine whether the departure is justified and disclose the nature and impact of the non-conformity to GAAP. Financial statements would not be deemed to present a fair financial position if the departure is unjustified and material.
Step-by-step explanation:
If a material departure from Generally Accepted Accounting Principles (GAAP) is noted during an audit examination of a public entity, the entity's financial statements would be classified as containing a departure from GAAP. The auditor must decide whether the departure is justified and, if it is not, the auditor's report would express a qualified or adverse opinion.
When financial statements do not conform to GAAP, auditors cannot issue an unqualified opinion, also known as a clean opinion, which states that the financial statements present the entity's financial position and results of operations fairly.
If there is a justified reason for the departure and if the impact of the departure is properly disclosed, the auditor may issue a qualified opinion. However, if the departure has a material effect on the financial statements and is not justified, the auditor should issue an adverse opinion. This indicates that the financial statements are not fairly presented and should not be relied upon.
The auditor's report must include an explanation for the qualification or the reasons for the adverse opinion to inform users of the financial statements about the nature and impact of the departure from GAAP.