Question

A client decides not to make an auditor's proposed adjustments that collectively are not material, and wants the auditor to issue the report based on the unadjusted numbers. Which of the following statements is correct regarding the financial statement presentation?

a. The financial statements are free from material misstatement, and no disclosure is required in the notes to the financial statements.
b. The financial statements do not conform with generally accepted accounting principles (GAAP).
c. The financial statements contain unadjusted misstatements that should result in a qualified opinion.
d. The financial statements are free from material misstatement, but disclosure of the proposed adjustments is required in the notes to the financial statements.

Answer 1

The correct statement is that the financial statements are free from material misstatement and no disclosure is required, since auditors focus on material misstatements, and immaterial unadjusted misstatements do not warrant additional disclosure.

Step-by-step explanation:

If a client decides not to make an auditor's proposed adjustments that collectively are not material and wants the auditor to issue the report based on the unadjusted numbers, the correct statement regarding the financial statement presentation is that the financial statements are free from material misstatement, and no disclosure is required in the notes to the financial statements.

This response is based on the fact that auditors are primarily concerned with material misstatements that could affect the users' decisions. If the unadjusted misstatements are not material, the financial statements are generally considered to present fairly, in all material respects, the financial position, results of operations, and cash flows in conformity with generally accepted accounting principles (GAAP). No disclosure is required in the notes to the financial statements for immaterial adjustments not made.