An audit adjustment is a proposed correction to the general ledger that is made by a company's outside auditors. The auditors may base the proposed correction on evidence found during their audit procedures, or they may want to reclassify amounts into different accounts. Such an adjustment should only be for a material amount; otherwise, the client could potentially be buried under an avalanche of minor adjustments that have no material impact on the financial statements
An audit adjustment may not be accepted by the client, especially if the adjustments will negate bonus payments that would otherwise have been paid to management, or when the effect could cause the company to breach a loan covenant. If so, the auditor must decide whether the noninclusion of the audit adjustment has a material impact on the accuracy of the client's financial statements, which could in turn impact whether the auditor is willing to give a clean audit opinion on those financial statements