18/05/2023

18/05/2023

Audit Opinions: The Four Main Types

In this blog, we will be discussing the type of audit opinions that are most often seen. There are four main types of audit opinions. When an auditor conducts an audit and issues a report, the report typically includes an opinion on the financial statements of the audited entity. This opinion would describe the auditor’s view on whether the financial statements are fairly presented, in all material respects, and in accordance with generally accepted accounting principles.
-
There are a few different types of audit opinions that can be issued. Understanding the differences between them can help you interpret the auditor’s report and make informed decisions about the audited entity. Here are some of the most common audit opinions:
  • Unqualified opinion
  • Qualified opinion
  • Adverse opinion
  • Disclaimer of opinion
-
The most desired opinion would be the standard unqualified opinion. This provides the reader of the financial statements assurance that the financial statements give a true and fair view. Which means they are free from any misstatements and/or errors.
-
An unqualified opinion with an emphasis on matter statement is also acceptable. It is a “clean” audit report with a paragraph included to highlight a certain issue such as an upcoming legal case or a provision. Auditors would like to draw your attention to these as they are fundamental to users’ understanding of the financial statements.
-
A qualified opinion indicates that the financial statements are true and fair except for a certain issue which would be set out in the “basis for qualified opinion statements”. An adverse opinion indicates to the users of the financial statements that the auditors conclude that the financial statements do not give a true and fair view.
-
An opinion other than unqualified indicates that a material misstatement exists or that there is a possibility that a misstatement exists. This can come about in ways either by a disagreement or a limitation of scope.
-
A disagreement occurs when the auditor concludes based on all audit evidence obtained that the financial statements as a whole are not free from material misstatement and the directors do not wish to correct these errors. Whether the auditor issues a qualified opinion or an adverse opinion depends on if the material disagreement is pervasive or otherwise.
-
Pervasive is when a misstatement is evident throughout the whole financial statements and not just isolated to one specific element of them. An example of this would be going concern. A going concern disagreement would have an impact on the financial statements as a whole and would result in an adverse opinion. However, if there was a material misstatement due to a cut-off sales issue this would result in a qualified opinion as this disagreement is isolated to revenue cut-off only.
-
A limitation of scope is when the auditor cannot obtain enough audit evidence to conclude if the financial statements as a whole are not free from material misstatement. Whether the auditor issues a qualified opinion or a disclaimer of opinion is based on if the material disagreement is pervasive or otherwise. If the limitation of scope is pervasive i.e. they cannot get enough audit evidence for most of the balances within the financial statements, a disclaimer of opinion is issued. This basically means that the accounts cannot be audited, and the auditor cannot determine the truth and fairness of the statement.
-
If the limitation of scope is isolated to one specific issue yet it is material for example the auditor not made aware of one of the locations where a physical inventory count took place would result in a qualified opinion being issued. These. are the primary types of audit opinions that can be issued. It’s important to note that not all audits are the same, and the nature and extent of the issues will determine the type of opinion issued. As a business owner or investor, it is vital that you understand these opinions and weigh them carefully in your decision-making.
-

Reach out to our team of experts for more information at info@cooneycarey.ie.