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Jan 23
1

Posted by:Esha Jain
Types of Audit Opinions

To understand what is Audit Opinion, let us first understand what is an Audit.

An Audit is a systematic examination of books, statutory records, documents, vouchers and accounts of an organisation to determine whether or not the financial as well as non-financial statements express or disclose a true and fair view of the concern. Thus, External Auditors who possess specified qualifications and are certified by the regulatory authority are appointed by organizations.

What is an Audit Opinion?

An auditor’s report consists of three stages:

  • The introductory stage indicating the responsibilities of the management as well as the audit firm/person;
  • The second stage depicting the Financial Statements;
  • The final stage is where the opinion of the auditor is recorded based on the Financial Statements.

What is the importance of an audit opinion?

  • An audit opinion is a kind of certification which expresses the unbiased and unambiguous viewpoint of an auditor
  • Inform the interested stakeholders who are interested in the company
  • To improve the internal controls of the management.
  • Shows whether or not the Financial Statements are in accordance with the Generally Accepted Accounting Principles (GAAP).

There are Four types of Audit Opinions.

1. UNQUALIFIED/ UNMODIFIED OPINION:

In simple words a report that is free of any material misstatements (not including any immaterial misstatements) and misrepresentations, and the records have been maintained in accordance with the standards known as GAAP. Then, such a report is considered to be a “clean report” or a “clean opinion”. This determines that the financial statements of the organization are presented fairly and are true and reliable. However, this opinion formed by the auditor does not provide an absolute assurance on the financial position rather a reasonable assurance, which can be utilized by a company or any institution who seeks to invest in the same.

2. QUALIFIED/ MODIFIED OPINION:

Qualified report or opinion is one which is not completely unqualified. The auditor comes to such a conclusion when he has reservation or an uncertainty on a particular matter material to the Financial Statements. Thus, he may insert or add a qualifying remark in his report. It includes an additional paragraph stating the reasons as to why the report is not a clean report.

For example;

  • If there is any unresolved matter or there is an inadequate disclosure regarding certain asset or liability material to the Financial Statement.

3. ADVERSE OPINION:

As the very name suggests an Adverse opinion or report is one that does not tally or it clashes or expresses a disagreement with the management. Not only this, but it also fails to conform with the standards of GAAP. When such a conflict is material and is misrepresented in the Financial Statements an auditor cannot pass a qualified or an unqualified opinion. Thus, when a report contains such spurious or incomplete nature or view of Financial Statement, it becomes unacceptable to various stakeholders interested in the organisation. Thus, it is proposed that the organisation have it re-audited with bona fide and fair view.

For Example;

  • Application of accounting principles by the management which is not according to the standards of GAAP
  • Disagreement in the mode of disclosure of documents and information.

4. DISCLAIMER OPINION:

By reasons of ambiguity in disclosure of facts or inability to receive all necessary information, representation or explanation, an auditor may as he may find it insufficient to express an appropriate opinion on the Financial Statement. Such an opinion which is in real terms not an opinion and the auditor is unable to conclude objectively is called a Disclaimer Opinion.

For Example;

  • Auditors are refused from examining certain documents or records
  • The Books of Accounts are not maintained according to the standards

5. MULTIPLE OPINION:

Though a rare phenomenon, an auditor may express different opinions for different aspects of Financial Statement in the Audit Report.

CONCLUSION:

Audit Opinion is an essential part of an Audit Report that facilitates various stakeholders take a thoughtful decision regarding their investment and develop confidence in the company regarding its true and fair position and avoiding the need to look into its Financial Statement personally, thus, relying on the opinion formed by an independent auditor or an auditing firm.

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