Different Audit Opinions
Different Audit Opinions
Audit reports are issued by auditors on completion of their review of a company’s financial statements. This involves the review of the statement of financial position, statement of profit or loss, statement of changes in equity and statement of cash flows. The purpose of the audit report is for the auditor to issue an opinion on whether they believe the financial statements as a whole are free from material misstatement, show a true and fair view of the entity and comply with the relevant general accounting standards.
There are four types of opinions which could be issued by an auditor: Unqualified, Qualified, Adverse and a Disclaimer of Opinion. These opinions are also linked with the auditor’s report and whether or not it is unmodified.
An unmodified audit report is one in which there are no errors or omissions that need to be rectified or disclosed in the notes to the financial statements.
A modified audit report is one in which there are either errors or omissions that will affect the audit opinion (modified report with a modified opinion), or there is information that needs to be disclosed in the notes to the financial statements which will not affect the audit opinion (modified report with an unmodified opinion).
Information to be disclosed is done using either an ‘Emphasis of Matter Paragraph’, used to bring attention to a situation that is vital to the understanding of the financial statements, or by an ‘Other Matter Paragraph’ that is used to bring attention to a situation that relates to, but is not included within the financial statements.
A modified report with an unmodified opinion:
Unqualified Opinion – the financial statements in the auditor’s opinion give a true and fair view and are properly prepared in accordance with Companies Act 2006.
A modified report with a modified opinion could have three different opinions:
Qualified Opinion – the financial statements have a material error or omission which is not pervasive (it is confined to one element or portion of the financial statements) and therefore only a part of the financial statements are affected.
This is also known as an ‘except for’ opinion, in which the financial statements give a true and fair view, except for the issue described in the notes to the financial statements.
Adverse Opinion – the financial statements contain a material error or omission which is pervasive (not restricted to a particular part of the financial statements).
This is also known as a negative opinion, as the errors influence the whole of the financial statements.
Disclaimer of Opinion – the financial statements lack sufficient and appropriate audit evidence due to an inability to obtain this and therefore an opinion is not given.
A material error or omission is one which would influence the economic decisions made from using these financial statements.
An auditor issues a Qualified or Adverse opinion after discussing with the client relevant changes to be made, in which the client then fails to make these required amendments.
All modified opinions within a modified report must be explained using a ‘Basis for Modified Opinion’ paragraph, located directly below the opinion paragraph.
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The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice. No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.