Question

When a client has a justified departure from GAAP, the audit report should include a paragraph describing the departure, its approximate effects (if they can be practicably determined), and the reasons for which compliance with GAAP would result in misleading statements.

True

False

Answer 1

Answer: True

In rare circumstances, the client may have a justified departure from GAAP.Rule 203 of the AICPA Code of Professional Conduct permits the auditor to issue an unqualified opinion when there has been a material departure from GAAP if the client can demonstrate, and the auditor concurs, that due to unusual circumstances, the financial statements would have been misleading had GAAP been followed. What constitutes unusual circumstances is a matter of professional judgment. Examples include new legislation or the evolution of a new form of business transaction.When a client has a justified departure from GAAP, the auditor should add an informational paragraph, either before or after the opinion paragraph, to describe the departure from GAAP, its approximate effects (if they can be practicably determined), and the reasons for which compliance with GAAP would result in misleading statements.