Types of audit opinions

  1. Unqualified opinion.
  2. Disclaimer opinion
  3. Qualified opinion
  4. Adverse opinion

1. Unqualified opinion.
This is issued when the auditor is satisfied in all material aspects that enable him express the required opinion on financial statements without any reservation. This is sometimes called a clean opinion. It is expressed when the auditor concludes that the financial statements give a true and fair view in accordance with the relevant financial reporting standards.

Emphasis on matter report
There are occasions when the auditor has no reservation as to the financial statements but where they exists unusual events, conditions or accounting policies and he feels that unless the reader may not reach a proper understanding of the financial position and results. In such circumstances, the auditor should express an unqualified opinion including an extra paragraph called ‗emphasis of the matter paragraph‘ to draw attention of the reader to the unusual matter.

The addition of such an emphasis of matter paragraph does not lead to a qualification of the audit opinion but is intended to enable the reader obtain a better understanding. To avoid this being understood as a qualification, the emphasis of the matter paragraph should contain the phrase ‗without qualifying our opinion‘.

Practical circumstances requiring emphasis of matter paragraph are:

  • Unusual condition would include destruction of assets after balance sheet date but the company remains a going concern.
  • The company being insolvent on the face of its own balance sheet but the auditor has letters of support which he is satisfied can be fulfilled by the other party thus he will accept appropriateness of the going concern assumption. Unusual events could also include changes in the legislation that could have a material impact on the entity‘s business operations subsequent to the balance sheet date. Unusual accounting policies that may lead to emphasis of matter paragraph would involve those matters not covered by any accounting standard.
  • Inherent uncertainties that may call for emphasis of matter paragraph would include contingencies at the balance sheet date which have not been resolved at the date of signing the auditor‘s report.
  • Negotiations for financing which have not been financed by date of signing of the auditor‘s report.

Qualifications of audit reports
When the auditor has reservation on any matter that is considered material to the financial statements, he may introduce qualifying remarks in the audit report. The auditor‘s reservation could arise out of the following;

  • Limitation on the scope of his work.
  • Disagreement with management.
  • Significant uncertainty affecting financial statements, the resolution of which is dependent upon future events.

2. Qualified audit opinion or except for opinion.
This is expressed when auditor concludes that unqualified opinion cannot be expressed but that the effect of any disagreement with management or limitation in scope is not so material and pervasive as to require an adverse opinion or disclaimed opinion. A qualified opinion implies that all aspects of the financial statements are okay except for the effects of the matters which the qualifications relate.

3. Disclaimer of opinion.
This is issued when the possible effect of a limitation in scope or uncertainty is so material or pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence, as a result he is unable to express an opinion on financial statements. A disclaimer of opinion implies that the auditor is unable to form an opinion because sufficient audit evidence could not be obtained.

4. Adverse opinion.
This is expressed when the effects of a disagreement is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading and incomplete nature of the financial statements. The
auditor states that due to the nature of the disagreement in his opinion, the financial statements do not show true and fair view.

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