Final answer:
Financial statements can depart from GAAP when adherence would result in misleading information, and auditors must be able to justify the departure based on unusual circumstances. This material departure must be disclosed, with reasons and impacts clearly explained in the financial statements.
Step-by-step explanation:
The question relates to the principles and standards that guide the preparation and presentation of financial statements. According to Generally Accepted Accounting Principles (GAAP), it is critical for the consistency and comparability of financial information that organizations adhere to these established norms. However, there can be certain circumstances where a departure from GAAP is permissible.
Option (c) 'When the auditor can demonstrate that due to unusual circumstances the financial statements would otherwise have been misleading' is the correct multiple-choice answer. In extraordinary situations where following GAAP would not accurately represent the financial status of the company, a material departure may be allowed. The rationale for the departure and its effects must be clearly disclosed in the financial statements.
It's important to note that options (a), (b), and (d) do not present valid reasons to deviate from GAAP. Financial statements must adhere to the principle of consistency, and personal preferences or geographic location do not justify a departure from these accounting standards.