What happens if management refuses to revise the financial statements when required?

When management refuses to revise the financial statements despite the auditor identifying necessary adjustments, the correct action is to modify the auditor's opinion. This is because the financial statements no longer present a true and fair view of the company's financial position and performance due to the uncorrected misstatements.

Modifying the opinion serves to inform users of the financial statements that there are material misstatements that have not been rectified, which impacts the reliability of the financial statements. This modified opinion will typically indicate whether the misstatements are material and pervasive, which is essential information for users relying on those financial reports.

If management does not act on the auditor’s recommendations, the integrity of the financial reporting could be compromised, leading the auditor to alter their opinion to reflect that the financial statements are not in compliance with the relevant financial reporting framework. This action is important for maintaining transparency and accountability in financial reporting.