An unqualified audit opinion represents which of the following?
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THE THREE ASPECTS WE AUDIT Show
The audit of financial statements The objective of an audit of financial statements is to express an audit opinion on whether the financial statements fairly present the financial position of auditees at financial year-end and the results of their operations for that financial year. We can express one of the following audit opinions:
Apart from auditing the financial statements, our other reporting responsibilities include auditing auditees’ reporting on their predetermined objectives and auditing auditees’ compliance with legislation. The audit of reporting on predetermined objectives Since the 2005-06 financial year, we have been phasing in the auditing of predetermined objectives and explaining to leaders within all spheres of government the importance of lending credibility to published service delivery information through the auditing thereof. Since the 2009-10 financial year, we have included a separate audit conclusion, based on the results of the audit on predetermined objectives, in management reports. However, these conclusions have not yet been elevated to the level of the audit report. The audit of compliance with legislation The Public Audit Act requires us to audit compliance with legislation applicable to financial matters, financial management and other related matters each year. Material instances of non-compliance are reported in the audit report. To enhance accountability, auditees must identify and fully disclose any unauthorised, irregular as well as fruitless and wasteful expenditure incurred. In most part, such expenditure is incurred as a result of non-compliance with legislation. Click here to download (PDF) the adcrobat version The five different opinions in an independent auditor's report What are the Types of Audit Opinions?In the independent auditor’s report, an auditor can issue one of five different opinions:
A clean (unqualified) opinion refers to financial statements that are “presented fairly, in all material respects…”. Deviations from a clean opinion (where the financial statements are not presented fairly) result in a reservation (modification) in the independent auditor’s report. Summary
Understanding Reservations in an Independent Auditor’s ReportThere are two types of reservations: 1. GAAP departureSituations where the financial statements deviate from the established accounting criteria. For example, a company that uses an incorrect accounting method faces a GAAP departure. 2. Scope limitationSituations where the auditor is unable to obtain sufficient appropriate audit evidence to base the audit on. This presents a scope limitation. In addition, the type of opinion, based on the reservation made, depends on two factors: 1. MaterialityMisstatements to the financial statements are considered material if the misstatements (individually or in aggregate), are expected to influence the decisions made by users who rely on the financial statements. 2. PervasivenessMisstatements to the financial statements are considered pervasive if the misstatements affect a substantial portion of the financial statements. What is a Qualified Opinion?A qualified opinion can be issued due to a GAAP departure or a scope limitation. In both cases, the misstatements are material but not pervasive. In other words, there is a material impact on the financial statements, but the misstatements are not widespread (do not affect a large number of accounts). Example 1: Qualified opinion due to a GAAP departureThe auditor noticed that the inventory of ABC Company faces a write-down due to obsolescence. However, the company refuses to write down the inventory. In such a scenario, a GAAP departure reservation is made. Since only the inventory and cost of goods sold accounts are wrong, a qualified opinion due to a GAAP departure would be issued. Example 2: Qualified opinion due to a scope limitationThe auditor wants to send out confirmation letters to customers for the accounts receivable balance as audit evidence. However, ABC Company does not want the auditor to do so. In such a scenario, a scope limitation reservation is made. Since the auditor has been unable to verify the accounts receivable, a qualified opinion due to a scope limitation would be issued. What is an Adverse Opinion?An adverse opinion can only be issued due to a GAAP departure. In such a case, the misstatements are both material and pervasive. In other words, there is a material impact on the financial statements, and the misstatements affect a large number of accounts. Example: Adverse opinion due to a GAAP departureThe auditor believes ABC Company faces a going concern issue and is unable to survive another year. The company disagrees and prepares its financial statements on a historical cost basis instead of on a liquidation basis. In such a scenario, a GAAP departure reservation is made. Since ABC Company prepared its financial statements on a historical cost basis, the majority of the company’s accounts are incorrect. An adverse opinion due to a GAAP departure would be issued. What is a Disclaimer of Opinion?A disclaimer of opinion can only be issued due to a scope limitation. In this case, the misstatements are material and pervasive. In other words, the auditor is unable to collect sufficient appropriate audit evidence to base its audit on and, as a result, a large number of accounts are not verifiable. Example: Disclaimer of opinion due to a scope limitationThe auditor is looking to review the company’s minutes book, which contains important information regarding the board of directors meeting and the audit committee. ABC Company does not permit the auditor to review the minutes book. In such a scenario, a disclaimer of opinion reservation is made. Since the auditor is unable to access the minutes book, a majority of the company’s accounts cannot be verified. A disclaimer of opinion due to a scope limitation would be issued. Related ReadingsThank you for reading CFI’s guide to Auditor Opinions. To keep learning and advancing your career, the following CFI resources will be helpful:
What is an unqualified audit opinion?Unqualified Opinion – Clean Report
An unqualified opinion doesn't have any kind of adverse comments and it doesn't include any disclaimers about any clauses or the audit process. This type of report indicates that the auditors are satisfied with the company's financial reporting.
What is an unqualified opinion quizlet?An unqualified opinion is an independent auditor's judgment that a company's financial records and statements are fairly and appropriately presented, and in accordance with Generally Accepted Accounting Principles (GAAP). An unqualified opinion is the most common type of auditor's report. You just studied 39 terms!
When an auditor expresses an unqualified audit opinion?Such an opinion is expressed when, in the auditor's judgment, the financial statements taken as a whole are not presented fairly in conformity with generally accepted accounting principles.
When an auditor expresses an unqualified audit opinion it means the financial statements are?There are three types of audit opinions:
Unqualified opinion - or clean opinion - financial statements present fairly in all material respects, the financial position and results of the entity. Qualified opinion - the financial statements contain material misstatements or omissions.
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