1 - Unqualified Opinion report
The most frequent type of report is referred to as the
Unqualified Opinion, and is regarded by many as the equivalent of a “clean bill of health” to a patient,which has led many to call it the
Clean Opinion, but in reality it is not a clean bill of health. This type of report is issued by an auditor when the financial statements presented are free of material misstatements and are represented fairly in accordance with the Generally Accepted Accounting Principles (GAAP), which in other words means that the company’s financial condition, position, and operations are fairly presented in the financial statements. It is the best type of report an auditee may receive from an external auditor.
2 - Qualified Opinion report
A
Qualified Opinion report is issued when the auditor encountered one of two types of situations which do not comply with generally accepted accounting principles, however the rest of the financial statements are fairly presented. This type of opinion is very similar to an unqualified or “clean opinion”, but the report states that the financial statements are fairly presented with a certain exception which is otherwise misstated. The two types of situations which would cause an auditor to issue this opinion over the Unqualified opinion are:
- Single deviation from GAAP – this type of qualification occurs when one or more areas of the financial statements do not conform with GAAP (e.g. are misstated), but do not affect the rest of the financial statements from being fairly presented when taken as a whole. Examples of this include a company dedicated to a retail business that did not correctly calculate the depreciation expense of its building. Even if this expense is considered material, since the rest of the financial statements do conform with GAAP, then the auditor qualifies the opinion by describing the depreciation misstatement in the report and continues to issue a clean opinion on the rest of the financial statements.
- Limitation of scope - this type of qualification occurs when the auditor could not audit one or more areas of the financial statements, and although they could not be verified, the rest of the financial statements were audited and they conform GAAP. Examples of this include an auditor not being able to observe and test a company’s inventory of goods. If the auditor audited the rest of the financial statements and is reasonably sure that they conform with GAAP, then the auditor simply states that the financial statements are fairly presented, with the exception of the inventory which could not be audited.
3 - Adverse Opinion report
An
Adverse Opinion is issued when the auditor determines that the financial statements of an auditee are materially misstated and, when considered as a whole, do not conform with GAAP. It is considered the opposite of an unqualified or clean opinion, essentially stating that the information contained is materially incorrect, unreliable, and inaccurate in order to assess the auditee’s financial position and results of operations. Investors, lending institutions, and governments very rarely accept an auditee’s financial statements if the auditor issued an adverse opinion, and usually request the auditee to correct the financial statements and obtain another audit report.
Generally, an adverse opinion is only given if the financial statements pervasively differ from GAAP.
An example of such a situation would be failure of a company to consolidate a material subsidiary.
4 - Disclaimer of Opinion report
A
Disclaimer of Opinion, commonly referred to simply as a
Disclaimer, is issued when the auditor could not form, and consequently refuses to present, an opinion on the financial statements. This type of report is issued when the auditor tried to audit an entity but could not complete the work due to various reasons and does not issue an opinion. The disclaimer of opinion report can be traced back to 1949, when the Statement on Auditing Procedure No. 23:
Recommendation Made To Clarify Accountant’s Representations When Opinion Is Not Expressed was published in order to provide guidance to auditors in presenting a disclaimer
The Disclaimer report is issued only when the auditors are unable to perform their work. When not enough time or information is available, a disclaimer of opinion report is issued. This is rare: An auditor will often only make this report if the company refuses to reveal specific information or if the auditing firm and the company break their contract.
An Adverse Opinion report is a negative response that occurs only when the auditor finds the company's records as a whole are uninformative and not in line with GAAP, or if the financial records have been falsified or are in other ways erroneous. The accountants add paragraphs explaining these problems and giving their opinions as to how the records differ from GAAP.
A Qualified Opinion report is given when the auditors were not able to fully satisfy themselves on all aspects of the company's financial status. Specific records may be missing, or some parts of information may not be up to GAAP. In some cases, the auditor may be able to access data but not fully confirm it. All these problems are documented and make the auditor's evaluation more negative.
The Unmodified Opinion report is the purest type of auditing report, one which is unmodified by any caveats the accountant writing the report may have, meaning that they have been able to access all needed financial information and that the information has conformed to GAAP (generally accepted accounting procedures). This makes it much easier for the accountant to perform the audit, but there are several qualifications the auditors are required to mention, such as whether other accountants besides the writer worked on the audit or whether there are concerns about the company's financial status.
The Unmodified Opinion report is the purest type of auditing report, one which is unmodified by any caveats the accountant writing the report may have, meaning that they have been able to access all needed financial information and that the information has conformed to GAAP (generally accepted accounting procedures). This makes it much easier for the accountant to perform the audit, but there are several qualifications the auditors are required to mention, such as whether other accountants besides the writer worked on the audit or whether there are concerns about the company's financial status.
The Unmodified Opinion report is the purest type of auditing report, one which is unmodified by any caveats the accountant writing the report may have, meaning that they have been able to access all needed financial information and that the information has conformed to GAAP (generally accepted accounting procedures). This makes it much easier for the accountant to perform the audit, but there are several qualifications the auditors are required to mention, such as whether other accountants besides the writer worked on the audit or whether there are concerns about the company's financial status.
The Unmodified Opinion report is the purest type of auditing report, one which is unmodified by any caveats the accountant writing the report may have, meaning that they have been able to access all needed financial information and that the information has conformed to GAAP (generally accepted accounting procedures). This makes it much easier for the accountant to perform the audit, but there are several qualifications the auditors are required to mention, such as whether other accountants besides the writer worked on the audit or whether there are concerns about the company's financial status.
The Unmodified Opinion report is the purest type of auditing report, one which is unmodified by any caveats the accountant writing the report may have, meaning that they have been able to access all needed financial information and that the information has conformed to GAAP (generally accepted accounting procedures). This makes it much easier for the accountant to perform the audit, but there are several qualifications the auditors are required to mention, such as whether other accountants besides the writer worked on the audit or whether there are concerns about the company's financial status.
The Unmodified Opinion report is the purest type of auditing report, one which is unmodified by any caveats the accountant writing the report may have, meaning that they have been able to access all needed financial information and that the information has conformed to GAAP (generally accepted accounting procedures). This makes it much easier for the accountant to perform the audit, but there are several qualifications the auditors are required to mention, such as whether other accountants besides the writer worked on the audit or whether there are concerns about the company's financial status.
The Unmodified Opinion report is the purest type of auditing report, one which is unmodified by any caveats the accountant writing the report may have, meaning that they have been able to access all needed financial information and that the information has conformed to GAAP (generally accepted accounting procedures). This makes it much easier for the accountant to perform the audit, but there are several qualifications the auditors are required to mention, such as whether other accountants besides the writer worked on the audit or whether there are concerns about the company's financial status.
Qualified Opinion
A Qualified Opinion report is given when the auditors were not able to fully satisfy themselves on all aspects of the company's financial status. Specific records may be missing, or some parts of information may not be up to GAAP. In some cases, the auditor may be able to access data but not fully confirm it. All these problems are documented and make the auditor's evaluation more negative.
Adverse Opinion
An Adverse Opinion report is a negative response that occurs only when the auditor finds the company's records as a whole are uninformative and not in line with GAAP, or if the financial records have been falsified or are in other ways erroneous. The accountants add paragraphs explaining these problems and giving their opinions as to how the records differ from GAAP.
Disclaimer of Opinion
The Disclaimer report is issued only when the auditors are unable to perform their work. When not enough time or information is available, a disclaimer of opinion report is issued. This is rare: An auditor will often only make this report if the company refuses to reveal specific information or if the auditing firm and the company break their contract.
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