A misstatement is a difference between what accounting standards and framework require the preparation of financial statements and what actually financial statements are.
A material misstatement is a misstatement that may affect the decision of the user of financial statements made basing on the financial statements. The materiality of misstatement depends on the nature of the entity and the need of the user of financial statements.
The auditor performs the audit to give the assurance that financial statements are free from material misstatements.
If the auditor concludes that financial statements contain material misstatements he will ask the management to change the financial statements in order to remove material misstatement. If the management refuses to remove what auditor considers to be material misstatements, then the auditor will consider its effect in his report.
If the auditor considers misstatement to be material but not pervasive than the auditor will issue qualified or except for report while if a misstatement is considered to be material and pervasive than the auditor will issue an adverse audit report.