When a client's financial statements contain a material departure from an FASB Statement on Accounting Standards and the public accounting firm believes the departure is necessary to ensure that the statements are not misleading,
A) The public accounting firm must qualify the auditors' report for a departure from GAAP.
B) The public accounting firm can explain why the departure is necessary and then give an unqualified opinion paragraph in the auditors' report.
C) The public accounting firm must give an adverse auditors' report.
D) The public accounting firm can give the standard unqualified auditors' report with an unqualified opinion paragraph.

Question

Quizplus · Accepted Answer

The public accounting firm can explain why the departure is necessary and then give an unqualified opinion paragraph in the auditors' report. This is known as an explanatory paragraph or emphasis of matter paragraph that explains the departure from GAAP and the reasons for it. This is appropriate when the departure is deemed necessary to prevent the financial statements from being misleading. However, the rest of the financial statements should still be in accordance with GAAP.

When a Client's Financial Statements Contain a Material Departure from an FASB