Qualified Opinion report

A Qualified Opinion report is issued when the auditor encountered one of two types of situations which do not comply with generally accepted accounting principles, however the rest of the financial statements are fairly presented. This type of opinion is very similar to an unqualified or “clean opinion”, but the report states that the financial statements are fairly presented with a certain exception which is otherwise misstated. The two types of situations which would cause an auditor to issue this opinion over the Unqualified opinion are:

• Single deviation from GAAP – this type of qualification occurs when one or more areas of the financial statements do not conform with GAAP (e.g. are misstated), but do not affect the rest of the financial statements from being fairly presented when taken as a whole.

• Limitation of scope - this type of qualification occurs when the auditor could not audit one or more areas of the financial statements, and although they could not be verified, the rest of the financial statements were audited and they conform GAAP.

Adverse Opinion report

An Adverse Opinion is issued when the auditor determines that the financial statements of an auditee are materially misstated and, when considered as a whole, do not conform with GAAP. It is considered the opposite of an unqualified or clean opinion, essentially stating that the information contained is materially incorrect, unreliable, and inaccurate in order to assess the auditee’s financial position and results of operations. Investors, lending institutions, and governments very rarely accept an auditee’s financial statements if the auditor issued an adverse opinion, and usually request the auditee to correct the financial statements and obtain another audit report.

Disclaimer of Opinion report

A Disclaimer of Opinion, commonly referred to simply as a Disclaimer, is issued when the auditor could not form, and consequently refuses to present, an opinion on the financial statements. This type of report is issued when the auditor tried to audit an entity but could not complete the work due to various reasons and does not issue an opinion.

Statements on Auditing Standards (SAS) provide certain situations where a disclaimer of opinion may be appropriate:

• A lack of independence, or material conflict of interest, exists between the auditor and the auditee.

• There are significant scope limitations, whether intentional or not, which hinder the auditor’s work in obtaining evidence and performing procedures.

• There is a substantial doubt about the auditee’s ability to continue as a going concern or, in other words, continue operating.

• There are significant uncertainties within the auditee.

Investors, lending institutions, and governments typically reject an auditee’s financial statements if the auditor disclaimed an opinion, and will request the auditee to correct the situations the auditor mentioned and obtain another audit report.

Key terms.

Adverse opinion – негативна думка – an opinion expressed in an auditors’ report to the effect that the financial statements do not give a true and fair view of the organization’s activities. This situation usually arises when there is a disagreement between the auditor and the directors, and the auditor considers the effect of the disagreement so material or pervasive that the financial statements are seriously misleading.

Audit opinion – думка аудитора – an opinion contained in an auditors’ report. It expresses a view as to whether or not the financial statements audited has been prepared consistently using appropriate accounting policies, in accordance with relevant legislation, regulations, or applicable accounting standards. The opinion also has to state that there is adequate disclosure of information relevant to the proper understanding of the financial statements.

Auditor’s report – аудиторський висновок – a report by the auditors appointed to audit the accounts of a company or other organization. Auditors’ reports may take many forms depending on who has appointed the auditors and for what purposes.

Disclaimer of opinion – відмова від висловлення думки – a statement made by an auditor to the effect that a limitation of the scope of the audit report is so material that he or she has not been able to obtain sufficient evidence to support an opinion on the financial statements.

Materiality – суттєвість – the extent to which an item of accounting information is material. Information is considered material if its omission from or misstatement in a financial statement could influence the decision making of its users.

Qualified opinion – умовно-позитивна думка – an audit opinion which is issued if the scope of the auditors’ examination has been limited, or the auditors disagree materially with the treatment or disclosure of a matter in the financial statements, or they do not comply with relevant accounting or other requirements.

Unqualified opinion – безумовно позитивна думка – an audit opinion which is given if the auditors are satisfied on all the points of the financial statements, and if any departure from legislation, regulations, or applicable accounting standards has been justified and adequately explained in the financial statements.