What must auditors do if adhering to GAAP would mislead the financial statements?

When auditors encounter a situation where adherence to Generally Accepted Accounting Principles (GAAP) might lead to misleading financial statements, the appropriate course of action is to depart from GAAP and disclose the nature of this departure. This approach acknowledges that while GAAP provides a structured framework for preparing financial statements, the primary objective is to present financial information that is not only compliant but also faithful in representing the economic reality of the entity.

By choosing to depart from GAAP, auditors help ensure that the financial statements represent a true and fair view of the company's financial position. This action is critical in cases where strict adherence to GAAP could result in a presentation that is misleading to users of the financial statements, such as investors or creditors.

Moreover, disclosing the departure offers transparency and maintains the integrity of the financial reporting process, allowing users to understand the conditions that warranted the departure and its implications. This approach aligns with the core principles of ethical accounting practice, prioritizing honesty and clarity over rigid compliance that could distort the financial truth.