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Types-of-Audit-Opinion

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. Since 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 an 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. The different types of audit opinion are based on the international practises followed by the accounting communities around the world.

Unqualified Opinion or Unmodified Opinion

An unqualified opinion is expressed by the Auditor when he/she concludes that the financial statements supply a true and fair view of the company’s financial standing in accordance with the financial reporting framework deployed in the preparation and presentation of the financial statements. Further, an unqualified opinion also indicates that:

  • All accounting principles have been adopted properly, and the financial statement has been prepared using the generally accepted accounting principles;
  • The financial statements comply with relevant legal regulations and requirements;
  • 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 relevant disclosures have not been made in the financial statements. Example of a modified report includes 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.

Disclaimer of Opinion

If there is a limitation on the scope of the auditor’s work or if there is a disagreement with management regarding the usability of the accounting policies selected, the method of their utilisation or the adequacy of financial statement disclosure, then an adverse or disclaimer of opinion is issued. Whenever an auditor issues an audit opinion that is qualified or adverse or a disclaimer of opinion, a clear description of all the reasons is included in the audit report. A disclaimer of opinion is expressed by an Auditor when the possible effect of limitation on the scope of the audit is so material and pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence.

Adverse Opinion

An adverse opinion is expressed when the possible effect of a disagreement with management is material and pervasive to the financial statements. Hence, the auditor concludes that the qualification of the audit report is not adequate to disclose the misleading nature of the financial statements. In case an adverse opinion is issued, the board of directors of the company are legally bound to submit an explanation to the members of the company. The explanation should inform the members the reason for the adverse opinion.

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