Types of Audit Opinion

Types of Audit Opinion

The audit opinion refers to the statement which the independent auditors reveal to the financial statements of their client after evaluating them. Entrepreneurs should consider hiring an audit firm to obtain audit opinion from the auditors. The audit opinion is vital for stakeholders since it enables them to know if the information in their financial statements that they use is true and fair and in accordance to Financial Reporting Standards (Also see FRS 1). Thus, they may determine whether they can use that information when they are making any decision.

Also, the audit opinion indirectly tells the users of financial statements about the integrity of management and directors of the company (Also see How Can Business Owners Manage Their Time Wisely).

Types of Audit Opinion

Generally, there are two types of audit opinions, which are the unmodified opinion and modified opinion. The modified opinion can be further divided into three, which are the qualified opinion, adverse opinion, and the disclaimer of opinion.

Unmodified Opinion

One should express an unmodified opinion to the financial statements that one has prepared in all material respect and follow the application frameworks.

The auditors will issue this opinion as soon as they have acquired sufficient and appropriate audit evidence from their client’s financial statements after they have conducted the necessary audit procedures.

Keep in mind that the auditors are not giving absolute assurance on the client’s financial statements, and therefore it uses the phrase “in all material respect”.

The phrase “all material respect” here indicates that no material misstatement in the financial statements is present. However, there is a possibility that there is an immaterial misstatement.

Having immaterial misstatement in the financial statements is completely fine as it will not lead the readers of the financial statements to make an incorrect selection.

Qualified Opinion

This is one of the modified audit opinions where the auditors draw a conclusion after conducting the testing, and they found out that there is a material misstatement in the financial statements. However, the misstatements will not pervade. The determination of whether the misstatement is pervasive is a bit subjective. It is because this depends on the judgement of the auditor.

Yet, according to the standards, misstatement is not pervasive to financial statements provided that those misstatements do not affect the financial statements and readers’ decision making. An external auditor (Also see The Audit Objective of External and Internal Audit) could issue a qualified opinion on the opening balance of the previous year’s financial statements that they did not audit.

From the perspective of seriousness, the qualified audit opinion is more serious than the unqualified audit opinion. However, it is better than adverse as well as disclaimers.

Adverse Opinion

The auditors will issue such an opinion to the financial statements when they analysed and concluded that their client has materially misstated the financial statements, and it is pervasive. An adverse opinion is more severe than a qualified opinion.

This opinion tells those who use the financial statements that when they are making decisions, these financial statements are unreliable.

The misstatements are pervasive and material in the case of adverse opinion.

Disclaimer of Opinion

An auditor will issue the disclaimer of opinion when they are unable to acquire and access to the audit evidence for a single or a group of items as the supporting documents for their testing.

The auditors believe that for those items that they cannot access or obtain, the information might be pervasive as well as materially misstated.

This will happen after the auditors have tried their best to negotiate with their customer to acquire all the vital information. Yet, the customer refuses to do so regardless of such an action is intentional or unintentional.

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