Unqualified Opinion
Firstly, the unqualified opinion is the best possible audit outcome. And, it is also by far the outcome that
auditors report most often. By contrast, the other three possible results appear Rarely.
The term "unqualified" means that, in the auditor's opinion…
Financial statements conform to Generally Accepted Accounting Principles (GAAP).
And, statements represent the entity's financial accounts fairly.
Qualified Opinion
Secondly, a qualified opinion means the auditor finds that reports conform to GAAP, except in just a few
areas. For these areas, the auditor cannot assert conformance.
The qualified opinion may result because:
The report misstates or misclassifies accounting entries.
For example, an expense that should appear above the gross profit line appears wrongly below it.
This error can lead to misleading Gross profit figures.
There are limits on audit scope.
In other words, auditors may not have had access to particular financial data.
The auditor doubts the veracity of specific financial data.
The auditor is not entirely confident that reports:
o Comply with GAAP
o Represent the entity's accounts fairly
In conclusion, auditors report the audit outcome as "qualified" when they are not comfortable calling it
either "unqualified" or "adverse." With qualified opinions, auditors state specific reasons for that
conclusions.
Adverse Opinion
Thirdly, an "adverse" opinion means the auditor finds one or both of the following.
Statements do not fairly represent the entity's accounts.
The audited statements do not comply with GAAP.
Before publishing an adverse opinion, auditors advise the firm's accountants and officers of such
problems. And, auditors then work with them to correct problems, insofar as they can. They do
this hoping to describe the outcome as "unqualified" or "qualified" opinion, instead of "adverse,"
if possible.
When auditors do report an adverse opinion, they give specific reasons for the conclusion. As a
result, auditors may point out specific accounting errors or departures from GAAP.
In any case, an adverse opinion has severe consequences for the reporting entity. At a minimum,
the conclusion ensures that investors, regulators, lenders, and governments will reject the reports.
Also, if the audit reveals illegalities, corporate officers may be held personally accountable.
Disclaimer of Opinion
Fourthly, auditors may issue a disclaimer of opinion. Note especially that this is not an opinion. Instead,
it means that auditors choose not to render one.
Auditors may issue a disclaimer of opinion when:
They believe they cannot audit impartially. With the disclaimer, therefore,
auditors recusethemselves.
The auditor's scope is limited. The auditor is limited in this way, for instance, when auditors
cannot access particular financial data.
Auditors have other doubts about the reports. For example:
o Financial statements may seem to violate accounting principles such as the matching
concept or the conservatism principle.
o Auditors may question the classification of certain revenues and expenses.
o Some listed capital items probably should not have been capitalized.
o They may question the way the entity applies rules such as the Lower of Cost or
Market rule, or LIFO and FIFO rules for inventory.
Auditors issue conclusions only when they are confident the opinion is supportable. Otherwise, they
submit a disclaimer of opinion.
