Final answer:
Auditors encountering incorrectly depreciated fixed assets with management's refusal to correct material misstatements must assess the impact on their audit report, potentially issuing a qualified, adverse, or disclaimer of opinion.
Step-by-step explanation:
When auditors discover that fixed assets have been incorrectly depreciated and management refuses to correct the material misstatements, this triggers a significant issue in the auditing process.
In such cases, auditors will have to evaluate the materiality of the misstatements and consider the implications for their audit report.
The auditor may need to issue a qualified opinion, an adverse opinion, or a disclaimer of opinion, depending on the severity of the misstatements and their pervasiveness in the financial statements.
Additionally, auditors must communicate these findings to the appropriate level of management and, if necessary, to those charged with governance.
Management's responsibility is to present financial statements that are free from material misstatement, whether due to fraud or error.
When auditors find that this is not the case and management is unwilling to make corrections, the integrity of the financial statements is compromised, and this may have implications for stakeholders relying on these financial statements.
Therefore, it is crucial for auditors to adhere to professional standards and ensure that their audit report accurately reflects the financial situation of the company.
If the misstatements are indeed material and management’s refusal to correct them persists, this could lead to reporting and legal implications for the company.