Auditing and Attestation - Certified Public Accountant (CPA) Practice Exam 2026 - Free CPA Practice Questions and Study Guide

The correct answer highlights that when a client opts not to incorporate an auditor's proposed adjustments deemed immaterial, the financial statements remain free from material misstatement. This means that even though there are some unadjusted misstatements, their size and nature are such that they do not affect the users' decision-making regarding the financial statements.

In this context, the auditor's responsibility is to assess the overall financial statements for material misstatements, and if the unapproved adjustments are immaterial, it does not necessitate disclosure. Therefore, the conclusion is that the financial statements, as presented, still adequately conform to the requirements set forth by generally accepted accounting principles (GAAP), as materiality levels are a crucial component in evaluating financial reporting and auditing practices.

Since the other options suggest either a lack of conformity with GAAP or the necessity for disclosure in the notes due to immaterial misstatements, they do not align with the principles governing materiality in this scenario. This understanding reinforces the concept that not all misstatements, particularly those considered immaterial, warrant adjustments or disclosure in financial statements.