A client that treats a material lease transaction as an operating lease when it is in fact a capital lease has deviated from GAAP and will receive a qualified or adverse opinion.

Question

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GAAP (Generally Accepted Accounting Principles) requires that material lease transactions be classified as either operating leases or capital leases based on certain criteria. If a client has improperly classified a capital lease as an operating lease, this deviation from GAAP could result in a qualified or adverse opinion from auditors.

A Client That Treats a Material Lease Transaction as an Operating