Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

What should an auditor do if they identify a GAAP departure during the audit?

1. Only report it to management

2. Issue a clean opinion

3. Detail the departure in the audit report

4. Ignore it if immaterial

The correct answer is: Detail the departure in the audit report

Identifying a departure from Generally Accepted Accounting Principles (GAAP) during an audit is a significant finding that must be addressed appropriately. Detailing the departure in the audit report serves multiple purposes. Firstly, it ensures that the users of the financial statements are made aware of the non-compliance and can understand its implications for the financial reporting. Transparency is crucial in auditing, and documenting such departures contributes to the integrity of the audit process. Moreover, detailing the departure allows the auditor to communicate the issue not just to management, but also to stakeholders, which could include investors, creditors, and regulatory bodies. It acts as a safeguard against potential misinterpretations or misinformation regarding the financial position of the entity being audited. By issuing a clean opinion despite a GAAP departure, the auditor would be misleading users of the financial statements, as it implies that the financial statements are free of material misstatements and comply with GAAP. Ignoring the departure, even if deemed immaterial, would neglect the auditor's responsibility to uphold the principles of transparency and accountability. Therefore, clearly documenting the GAAP departure reinforces the auditor's duty to provide accurate and reliable assessments of the financial statements.