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Audit Reports Type

There are four types of audit opinions that can be issued: unqualified, qualified, adverse, and disclaimer of opinion. An unqualified opinion indicates the financial statements are fairly presented. A qualified opinion means there is a deviation from GAAP but it does not materially affect the statements. An adverse opinion means the statements are materially misstated, while a disclaimer means the auditor could not form an opinion due to limitations.

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380 views3 pages

Audit Reports Type

There are four types of audit opinions that can be issued: unqualified, qualified, adverse, and disclaimer of opinion. An unqualified opinion indicates the financial statements are fairly presented. A qualified opinion means there is a deviation from GAAP but it does not materially affect the statements. An adverse opinion means the statements are materially misstated, while a disclaimer means the auditor could not form an opinion due to limitations.

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sarah031
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© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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DEFINITIONS

Disclaimer of Opinion:
The auditor doesn't want to or can't give an opinion on whatevers being audited.

Reasons:

• A lack of independence, or material conflict(s) of interest, exist between the


auditor and the auditee There are significant scope limitations, whether
intentional or not, which hinder the auditor's work in obtaining evidence and
performing procedures There is a substantial doubt about the auditee's ability
to continue as a going concern or, in other words, continue operating
• There are significant uncertainties within the auditee

Adverse Opinion:
(The worse) When an auditor determines the financial statements are materially
misstated, or as a whole don't conform with GAAP (Generally Accepted Accounting
Principles)

Qualified Opinion:
The auditor finds 1 of 2 types of situations that don't comply with GAAP. The auditor
determines the financial statements are presented fairly except for (the situation that
doesn't comply).

Reasons:

• Single deviation from GAAP - occurs when one or more areas of the financial
statements don't conform with GAAP, but don't affect the rest of the financial
statements from being fairly presented when taken as a whole.
• Scope of limitation - occurs when the auditor couldnt audit one or more areas
of the financial statements, and even though they couldnt be verified, the rest
of the financial statements were audited and they conform GAAP.

Unqualified Opinion:
(The best) Everything presents fairly and, as a whole, is in accordance with GAAP.

There are 3 types of unqualified opinions:

standard unqualified; unqualified with modified wording (ex. other auditors besides
the ones writing the report were used); and unqualified with ending explainatory
paragraph (ex. there might be a going concern problem with the company under
audit.)

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EXPLANATION
The Auditor's report is a formal opinion, or disclaimer thereof, issued by either an
internal auditor or an independent external auditor as a result of an internal or external
audit performed on a legal entity . The report is subsequently provided to a “user”
(such as an individual, a group of persons, a company, a government, or even the
general public, among others) as an assurance service in order for the user to make
decisions based on the results of the audit. An auditor’s report is considered an
essential tool when reporting financial information to users, particularly in business.

Unqualified Opinion report


The most frequent type of report is referred to as the Unqualified Opinion. This type
of report is issued by an auditor when the financial statements presented are free of
material misstatements and are in accordance with 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.

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.
• 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.

The wording of the qualified report is very similar to the unqualified opinion, but
an explanatory paragraph is added to explain the reasons for the qualification
after the scope paragraph but before the opinion paragraph.

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

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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.

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. Statements on Auditing Standards (SAS) provide certain situations where a
disclaimer of opinion may be appropriate:

• A lack of independence, or material conflict(s) of interest, exist between the


auditor and the auditee
• There are significant scope limitations, whether intentional or not, which
hinder the auditor’s work in obtaining evidence and performing procedures
• There is a substantial doubt about the auditee’s ability to continue as a going
concern or, in other words, continue operating
• There are significant uncertainties within the auditee

Although this type of opinion is rarely used, the most common examples where
disclaimers are issued include audits where the auditee willfully hides or refuses
to provide evidence and information to the auditor in significant areas of the
financial statements, where the auditee is facing significant legal and litigation
issues in which the outcome is uncertain (usually government investigations), and
where the auditee has going concern issues (the auditee may not continue
operating in the near future). Investors, lending institutions, and governments
typically reject an auditee’s financial statements if the auditor disclaimed an
opinion, and will request the auditee to correct the situations the auditor
mentioned and obtain another audit report.

Going concern
Going concern is a term which means that an entity will continue to operate in the
near future which is generally more than next 12 months, so long as it generates or
obtains enough resources to operate. If the auditee is not a going concern, it means
that it is either dissolved, bankrupt, shutdown, etc. Auditors are required to consider
the going concern of an auditee before issuing a report. If the auditee is a going
concern, the auditor does not modify his/her report in any way. However, if the
auditor considers that the auditee is not a going concern, or will not be a going
concern in the near future, then the auditor is required to include an explanatory
paragraph before the opinion paragraph or following the opinion papragraph, in the
audit report explaining the situation, which is commonly referred to as the going
concern disclosure. Such as opinion is called an "unqualified modified opinion".

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