A financial statement is accompanied by an audit opinion. This opinion is based upon the accountants’ opinion about the accounting procedures and records that were used in order to prepare the financial statement. There are 4 types of audit opinions, namely standard unqualified, qualified, adverse, and disclaimer.
Standard Unqualified OpinionStandard opinion without qualification is also called clean opinion. When the auditor believes that the financial statements have been fairly presented and are in accordance with GAAP, they issue a standard opinion. The auditor will also give a standard unqualified report on internal controls if the entity’s management is in charge of their implementation and maintenance. The auditor’s best possible report is one that gives a clear, unqualified opinion.
The following conditions are required for an unqualified standard opinion:
Included are all financial statements, including the statement of financial situation, statement on comprehensive income, and statement on retained earnings, as well as statement of cash flow.
The engagement was conducted in accordance with the three general principles.
It is sufficient to say that the auditor has collected enough evidence and managed the engagement such that he or she can conclude that three of the standards for fieldwork were met.
The financial reports are prepared according to Generally Accepted Accounting Principles.
It is not necessary to add an additional paragraph of explanation or modify the text of your report.
The standard audit report does not qualify and includes the title of the report, the audit report address, an introductory paragraph (including scope), a paragraph expressing opinion, as well as a date of publication. To ensure that users are aware of the report’s impartiality, auditing standards require the term “independent”. Reports are usually addressed to either the company or its board of directors. The first paragraph of an audit report, the introductory paragraph, explains the work done and defines the roles of management and auditor in relation to financial statements. The scope section of the report is described in the second paragraph. The rest briefly explains important aspects of auditing. The opinion paragraph in the final paragraph explains the auditor’s view on whether or not the financials statements comply with Generally Accepted Accounting Principles. The name of the CPA or auditor is determined by the firm. The end of the fieldwork is the date that the report should be submitted.
Qualified OpinionAn opinion with a qualified status is issued when a company has not adhered to Generally Accepted Accounting Principles. The auditor will provide an additional paragraph to explain why the report is not unqualified, even though it is the same as the standard unqualified opinion.
There are several circumstances that would prompt an auditor’s opinion to be qualified rather than the standard opinion.
Scope of limitations – when the auditor is not able to audit one of more financial statements or if they cannot be verified, this qualification will occur. The remaining financial statements were also audited to ensure they adhered to Generally Accepted Accounting Principles.
GAAP departure – this is a qualification that occurs when a financial statement does not comply with Generally Accepted Accounting Principles.
The auditor’s independence is compromised. The auditor may, for example, own stock in the business of the client. This opinion is not appropriate if the auditor believes the exceptions to be reported are extremely material. Under these circumstances, a disclaimer is issued or an adverse report is given.
