Types Of Audit Opinion
Audit opinion is an appraisal of a business’s financial status. This is usually completed by independent accounting professionals or an external auditor. The document covers the company assets, liabilities and a presentation of the auditor’s educated evaluation or assessment of the company’s financial status or position and future. Audit statements or reports are required or necessary according to the law for all publicly traded companies or for industries regulated by the Securities and Exchange Commission (SEC). Companies that seek funding, and those looking to improve their internal controls may find audit opinions or information valuable or important.
There are four kinds or types of audit opinion, statement or reports that can be released by an auditor. These include an adverse audit opinion, a qualified audit opinion, unqualified audit opinion, and a disclaimer audit opinion. The unqualified, or otherwise known as the clean opinion, is the best type of report a business can get.
An unqualified opinion is usually also called a clean opinion. It is issued if the auditor finds that each of the financial record provided by the business is free of misrepresentations. It shows that the audited financial statement is free from misstatements. It also indicates that the financial records have been maintained according to the standards of Generally Accepted Accounting Principles or GAAP. It is considered the best type of audit report that a business can receive.
An unqualified report has a title that includes the word ‘independent’. This word is placed to show that the report was prepared by an unbiased third party. The title is then followed by the main body which is made of three paragraphs. The main body highlights the auditor’s responsibilities, the audit’s purpose, and the audit’s findings. The report is signed and dated by the auditor and has his or her address included in the document.
If the company’s financial records have not been maintained according to GAAP, but there are no misrepresentations identified, an auditor may issue a qualified opinion. Writing a qualified opinion is very similar to that of an unqualified opinion. A qualified opinion, however, should include another paragraph which will highlight the reason why the audit report is not an unqualified one. An unqualified opinion cannot be expressed if the financial records are not presented in accordance with GAAP.
The worst audit opinion or report that can possibly be issued by an auditor to a business or company is an adverse opinion. An adverse opinion is issued if the firm’s records or financial statements do not conform to GAAP or the records were not prepared in accordance with GAAP. It may also mean that the financial records or statements provided or presented by the business are grossly misrepresented or there are gross misstatements in the report and there is the possibility of fraud in the preparation of the financial records. Even if this may happen or occur because of error, they are often an indication or sign of fraud. Once this type of report is issued, the company should make corrections to its financial statements and have them re-audited because lenders, investors, because other requesting parties will usually not accept them. Financial statements with adverse audit opinions are usually rejected by financial institutions and investors.
Disclaimer of Opinion
There are instances when auditors are unable to complete an accurate audit report. This happens due to various reasons like the absence of appropriate financial records. When this happens, the auditor can issue a disclaimer opinion that state that the opinion of the business’s financial status could not be determined. Disclaimers are made when an auditor is unable to express a definite opinion. This may be because of a lack of properly and accurately maintained financial records or reports, and the absence or inadequate support from management. This also happens when an auditor may not have the opportunity to fulfil tasks that they consider crucial to the audit like observing or reviewing operational procedures.
What happens during an audit?
During an audit of financial statements, auditors should review the processes and procedures on how the financial information of a business was prepared. Auditors check if the preparation or formulation of the financial reports of a company are aligned or associated with GAAP or other applicable financial reporting framework.
When preparing for an audit, it is important that the organisation should have a set of internal controls and policies that are monitored and reviewed by an internal audit team. There is importance in financial reporting in corporate transparency. Financial transparency help establish a good relationship with investors and the public.
Kingston Knight Audit are the Auditor Melbourne experts to contact when dealing with your trust account audit, SMSF Audit, financial statement audit, and internal audit requirements. Contact us today, Kingston & Knight Audit offers a free telephone consultation to establish how we can best help you achieve the assurance and compliance you require.