What Is an Auditor's Opinion?
Let me tell you directly: an auditor's opinion is a certification that comes with financial statements. It's based on my audit—or rather, the auditor's audit—of the procedures and records used to create those statements. This opinion states whether there are any material misstatements in the financial statements. You might also hear it called an accountant's opinion.
Understanding Auditor's Opinions
You need to know that an auditor's opinion appears in an auditor’s report. This report starts with an introductory section that outlines management's responsibilities and those of the audit firm. The next section identifies the specific financial statements the opinion covers. Then comes the third section, which details the auditor’s opinion on those statements. In some cases, especially with qualified or adverse opinions, there's a fourth section providing further explanation.
For companies in the United States, the opinion can be unqualified according to generally accepted accounting principles (GAAP), qualified, or adverse. Remember, the audit is done by an independent accountant, separate from the company being audited.
Key Takeaways
Here's what you should remember: an auditor's opinion comes from auditing the procedures and records that produce financial records or statements. There are four types of these opinions. The auditor's report includes an intro section, one identifying the financial statements, another outlining the opinion, and sometimes a fourth for extra details.
Unqualified Opinion Audit
An unqualified opinion is what we call a clean opinion. I issue this—or the auditor does—if the financial statements seem free from material misstatements after the audit. Additionally, if management takes responsibility for internal controls and I've tested their effectiveness through fieldwork, an unqualified opinion covers that too.
Qualified Audit
A qualified opinion means the company’s financial records didn't follow GAAP in all transactions. The wording is similar to an unqualified opinion, but I add a paragraph highlighting the deviations from GAAP and explain why it's not unqualified.
This could happen due to a scope limitation in the audit or an accounting method not following GAAP. However, the issue isn't widespread and doesn't misstate the company's overall financial position.
Adverse Opinion
The worst opinion a business can get is an adverse one. It means the financial records aren't in line with GAAP and have grossly material, pervasive misstatements. This could point to fraud. Investors, lenders, and financial institutions usually won't accept statements with adverse opinions for debt covenants.
Disclaimer of Opinion
If I can't complete the audit report because financial records are missing or management isn't cooperating, I issue a disclaimer of opinion. This is a scope limitation, meaning no opinion could be formed on the financial statements. Note that a disclaimer isn't an opinion at all.
Other articles for you
Payroll is the essential process of compensating employees while ensuring compliance with taxes and regulations.
Foreign investment entails capital flows from one country to another, providing foreign investors with ownership in domestic companies and assets.
Monetarist theory posits that changes in the money supply primarily drive economic growth and business cycles.
A high close is a manipulative trading tactic where small trades at high prices are made in the final minutes to inflate a stock's closing price.
The Earned Income Tax Credit (EITC) is a refundable tax benefit for low- to moderate-income workers that reduces taxes owed and can provide refunds.
Globex is the pioneering electronic trading platform for derivatives, launched in 1992 by CME Group, handling the majority of their trading volume across various asset classes.
Smart beta ETFs use rules-based systems to select and weight investments beyond traditional market-cap methods, blending passive and active strategies for potentially better performance.
The turnover ratio measures how frequently a mutual fund or portfolio replaces its holdings over a year, impacting costs and taxes for investors.
A growth company generates earnings and cash flows faster than the economy, reinvesting profits for expansion rather than paying dividends.
A FICO score is a credit rating tool used by lenders to assess a borrower's reliability based on their credit history.