What are the 4 types of audit opinions?

An auditor’s opinion is a formal statement made by an auditor concerning a client’s financial statements. There are several types of audit opinions, which are noted below.

Unqualified Opinion

The unqualified opinion states that the financial statements fairly reflect the client’s financial results and financial position. This is the gold standard opinion that clients seek, since it provides a seal of approval to the client’s financial statements, making it easier to raise money from lenders and investors.

Qualified Opinion

The qualified opinion indicates any limitations on the scope of the audit and may describe certain information that could not be verified.

Adverse Opinion

The adverse opinion indicates significant problems with the client’s financial statements.

Disclaimer

Another possible outcome is the disclaimer, where the auditor states that no opinion can be given regarding the financial statements due to such factors as the absence of financial records or a lack of cooperation by the client’s management team.

There are four different types of audit report opinions that can be issued by the company’s auditor based on the analysis of the company’s financial statements. It includes Unqualified Audit Report, Qualified Audit Report, Adverse Audit Report, and Disclaimer Audit Report.

Audit Report is the basis for determining the financial capacity and quality of the company. Also, one can consult the audit report in measuring the company’s performance for the given fiscal year based on which investors will rely on the company and invest their money to enhance their returns.

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Source: Audit Report Types (wallstreetmojo.com)

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Table of contents

• Types of Audit Reports Opinions
  • Top 4 Audit Report Opinion Types
    • #1 – Clean Report
    • #2 – Qualified Opinion
    • #3 – Disclaimer Report
    • #4 – Adverse Audit Report
  • Conclusion
  • Recommended Articles

Top 4 Audit Report Opinion Types

In the modern corporate world, based on the below audit opinion, types of the audit report is determined:

Let’s understand each audit report opinion types with an example:

#1 – Clean Report

It is the most common opinion given by the auditors and always expected by the auditee. In this type of audit report, the advice given by the auditor will be unqualified, without any adverse comments or any disclaimer about any clauses or process. As per the auditor, by this report, they are satisfied with the company’s performance and finding its functions in sync with governance and applicable statute.

Example: HSBC Bank-Calendar Year 2018- Unqualified/Clean Audit Report

In our opinion, HSBC (“The Company”) Group financial statements and parent company financial statements:

• Give a true and fair view of the state of the company’s affairs on December 31, 2018 and the company’s profit and cash flows for the yearCash Flows For The YearCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more then ended;
• Have been prepared under the requirements of the Companies Act 2006, and complying requirements of the Group financial statements, Article 4 of the IAS Regulation; and
• Have been properly prepared under UK GAAP and IFRSs as adopted by the European Union.

#2 – Qualified Opinion

This type of audit report, an auditor gives when he is not confident about any specific process oThis type of audit report, an auditor gives when he is not confident about any specific process or transaction, based on which they are not in the position to issue Clean/Unqualified OpinionUnqualified OpinionAn unqualified opinion is concluded by an auditor appointed by the company after making substantial procedures to check the policies and procedures in place and collected optimum evidence that the organization does not include any material discrepancies or misstatements.read more. Investors and organizations do not accept a qualified opinion as it creates a negative impression.

Example: General Format in the UK as per UK GAAP or IFRS

In our opinion, except for the effects of the matter described in the basis for qualified opinion sectionQualified Opinion SectionThe company's auditor issues a qualified opinion in the audit report if it is found that the company's financial statements are presented fairly, but with exceptions in specific areas. It is one level below a Unqualified Opinion (i.e. Clean Opinion) and is given when the Auditor believes the financial statement has not been prepared in accordance with the rules laid down under the provisions of GAAP or IFRS.read more, the financial statements:

• Give an accurate and fair view of the state of the company’s affairs as of December 31, 2018 and its profit for the year ended;
• Have adequately been prepared following the United Kingdom Generally Accepted Accounting Practice / IFRSs as adopted by the European Union; and
• Have been prepared under the requirements of the Companies Act 2006.

A Basis for Qualified Opinion

The notes to the financial statements do not disclose that one of the company’s directors, John Smith, controls ABC Ltd., from which the company purchased goods and services during the year of xxx. Such disclosure is required by IFRS 102 / IFRSs as adopted by the European Unio].

We have audited as per International Standards on Auditing (UK) (ISAs) and applicable law. We are independent of the company under the ethical requirements relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities under these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.

#3 – Disclaimer Report

Disclaimer reports by auditorsAuditorsAn auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country's local operating laws.read more distance them from giving any opinion on the financial statements. The main reason for providing the disclaimer of opinion can be reasons like putting a limitation on the scope of the auditors, not obtaining satisfactory explanation and not being able to determine the true nature of transactions, not obtaining sufficient audit evidenceAudit EvidenceAudit evidence is information gathered by auditors during the course of an audit, whether internal, statutory, or otherwise. These facts serve as the foundation for the opinion in the audit report.read more, etc. This kind of audit opinion is considered very harsh and creates a negative image.

Example General Format in the UK as per UK GAAP or IFRS

We do not express an opinion on the accompanying financial statements of the company. Because of the significance of the matter described in the basis for the disclaimer of the opinion section of our report, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements.

A Basis for Disclaimer of Opinion

We can also not confirm the bank balance (including overdraft) and interest payableInterest PayableInterest Payable is the amount of expense that has been incurred but not yet paid. It is a liability that appears on the company's balance sheet.read more thereon since statutory authorities freeze the accounts because of the non-deposition of the statutory dues. As a result, the facility ceased to operate, and they reported the same matter in the previous year.

In addition, we were unable to verify by alternative means balance of accounts receivableBalance Of Accounts ReceivableAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year. read more and balance of accounts payable and corresponding gain or loss, if any of these balances is not recorded for the year ended December 31, 2018 and reported the same matters in a previous year.

#4 – Adverse Audit Report

An auditor gives an adverse report when he is not satisfied with the financial statements, or there is a high level of material misstatements, irregularities that can breach the trust of investors and the government. Qualified reports are considered the auditor’s primary weapon, which they can use as public accountability. As a responsible professional, the auditor can attract the public’s attention about any non-acceptable approach the companies accept.

Example: General Format in the UK as per UK GAAP or IFRS

In our opinion, because of the lacking of the information mentioned in the basis for the Adverse OpinionAdverse OpinionAn adverse opinion is the auditor's findings of misrepresentation and misstatement of the company's financial health and performance as identified in the financial statements. It is the conclusion of the professional assessment of the corporate accounts depicting false or unfair business practice.read more paragraph, the financial statements do not present the information required by the Companies Act 2006 as required and also do not give a true and fair view in line of the UK GAAP or IFRS that state of affairs of the company as on December 31, 2018 and its profit/loss and cash flow for the year ended on that date.

A Basis for Adverse Opinion

The company’s borrowings have matured, and the outstanding amount is payable on March 31, 2019. The company cannot take loans, and there are chances of defaulting. These events indicate a material uncertainty about its ability to continue its going concern assumption. Therefore, there are high chances of realizing funds from the sale of assets and paying out its liabilities to continue the business. The financial statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more (and notes) do not disclose this fact.

Conclusion

Based on the facts and circumstances of each type of audit assignment, the auditor is needed to modify its opinion by taking professional judgments and acceptable legal opinions.

Recommended Articles

This has been a guide to Audit Report Types. Here we discuss the top 4 audit report opinion types, including Clean Report, Qualified Report, Disclaimer Report, and Adverse Audit Report. You may learn more about Accounting from the following articles –

What are the 4 types of audits?

What are the 5 types of audit opinions?

How many types of audit opinions are there?

What is the most common type of audit opinion?