Types of Audit Opinion
Types of Audit Opinion
At the end of a statutory audit, the Auditor issues an audit report containing the Auditors views on the financial statements of the company. As an audit is an engagement for verification of the books of accounts of an entity, the audit report is summarised in the audit opinion. The verification of the book of accounts and other relevant facts, help the auditor form and opinion and is the basis of the opinion expressed. In this article, we look at the four major types of audit opinions that can be expressed by an Auditor in India.
Unqualified Opinion or Unmodified Opinion
An unqualified opinion is expressed by the Auditor when he/she concludes that the financial statements give a true and fair view of the company’s financial standing in accordance with the financial reporting framework used for the preparation and presentation of the financial statements. Further, an unqualified opinion also indicates that:
- All accounting principles have been adopted propertly and the financial statement have been prepared using the generally accepted accounting principles;
- The financial statements comply with relevant statutory requirements and regulations;
- There is adequate disclosure of all material matters relevant to the proper presentation of the financial information;
Qualified Opinion or Modified Opinion
An audit report is said to be a qualified report or a modified report if the Auditors report is modified to add emphasis or highlight a matter affecting the financial statements. One of the main reason for qualifying an audit report or modifying an audit report is if there are concerns to the auditor regarding a going concern problem and the going concern question is not resolved and adequate disclosures have not been made in the financial statements. Example of an modified report include a phrase such as the following in the audit report:
“Without qualifying our opinion, we draw attention to Note II of the Schedule to the financial statements. The entity is defendant in a lawsuit alleging patent infringement. The ultimate outcome of the matter cannot presently be determined, and no provision for any liability that may result has been made in the financial statements.
Adverse or Disclaimer of Opinion
If there are limitation on the scope of the auditor’s work or if there is a disagreement with management regarding the acceptability of the accounting policies selected, the method of their application or the adequacy of financial statement disclosure, then an adverse or disclaimer of opinion is issued. Whenever an auditor issues a audit opinion that is qualified or adverse or a disclaimer of opinion, a clear description of all the substantive reasons are included in the audit report.
Disclaimer of Opinion
A disclaimer of opinion is expressed by an Auditor when the possible effect of limitation on scope of the audit is so material and pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence.
An adverse opinion is expressed when the possible effect of a disagreement with management is so material and pervasive to the financial statements that the auditor concludes that a qualification of the audit report is not adequate to disclose the misleading or incomplete nature of the financial statements.
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