An Audit Opinion also called as Audit Report and Audit Statement. In financial reporting, an auditor's opinion is the outcome of an auditor's review of an organization's financial statements.
The auditor's opinion does not judge the financial position of the reporting entity. Nor does it otherwise interpret accounting data. An audit opinion is providing an independent and expert opinion on the fairness of financial statements through an audit is the most frequent attestation service.
There are four types of audit opinions :
1) Unqualified Opinion or Clean Opinion
Often called a clean opinion, an unqualified opinion is an audit report that is issued when an auditor determines that each of the financial records provided by the small business is free of any misrepresentations. In addition, an unqualified opinion indicates that the financial records have been maintained in accordance with the standards known as Generally Accepted Accounting Principles (GAAP). This is the best type of report a business can receive.
Typically, an unqualified report consists of a title that includes the word “independent.” This is done to illustrate that it was prepared by an unbiased third party. The title is followed by the main body. Made up of three paragraphs, the main body highlights the responsibilities of the auditor, the purpose of the audit and the auditor’s findings. The auditor signs and dates the document, including his address.
2) Qualified Opinion
In situations when a company’s financial records have not been maintained in accordance with GAAP but no misrepresentations are identified, an auditor will issue a qualified opinion. The writing of a qualified opinion is extremely similar to that of an unqualified opinion. A qualified opinion, however, will include an additional paragraph that highlights the reason why the audit report is not unqualified. The qualified opinion may result because:
- The report misstates or misclassifies accounting entries. For example, an expense that should appear above the gross profit line appears wrongly below it. This error can lead to misleading Gross profit figures.
- There are limits on audit scope. In other words, auditors may not have had access to particular financial data.
- The auditor doubts the veracity of specific financial data.
- The auditor is not entirely confident that reports:
-Comply with GAAP
-Represent the entity's accounts fairly
3) Adverse Opinion
The worst type of financial report that can be issued to a business is an adverse opinion. This indicates that the firm’s financial records do not conform to GAAP. In addition, the financial records provided by the business have been grossly misrepresented. Although this may occur by error, it is often an indication of fraud. When this type of report is issued, a company must correct its financial statement and have it re-audited, as investors, lenders and other requesting parties will generally not accept it.
4)Disclaimer of Opinion
On some occasions, an auditor is unable to complete an accurate audit report. This may occur for a variety of reasons, such as an absence of appropriate financial records. When this happens, the auditor issues a disclaimer of opinion, stating that an opinion of the firm’s financial status could not be determined.
Published by : Hau Rui Xian
Reference Link :
https://smallbusiness.chron.com/4-types-audit-reports-3794.html
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