Inadequate disclosures and omission of cash flow statements are two examples which an auditor can face at the time of auditing the financial statements. They can be said to be departures from GAAP. While auditing, if auditor comes across financial statement misstatements due to departure from GAAP, auditor will issue qualified opinion or adverse opinion with basis of modification paragraph. Basis of modification paragraph appears before the opinion paragraph in audit report and should contain the description of departure of GAAP and quantification of financial effects due to departure in the financial statement. If quantification is not practical, auditor should state in the paragraph that the quantification is not practical. Audit client may request the auditor to include a comment stating that other accounts are fairly presented as per GAAP. Auditor should not accept the request as it may lead to contradiction of qualified or adverse opinion.
