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Qualified Opinion

What is a 'Qualified Opinion'

A qualified opinion is a statement issued after an audit is done by a professional auditor that suggests the information provided was limited in scope and/or the company being audited has not maintained GAAP accounting principles. Auditors who deem audits as qualified opinions are advising whomever is reading the document the information within the audit is not complete or the accounting methods used by the company do not follow GAAP.

Explaining 'Qualified Opinion'

A qualified opinion states the financial statements of a client are, with the exception of a specified area, fairly presented. A qualified opinion bears no reflection on the financial standing or operational efficiency of the organization.

Qualified Opinion Situations

A qualified opinion is typically given due to a limitation of scope in which the auditor was not able to gather sufficient evidence for various aspects of the financial statements. Without sufficient verification of transactions, an unqualified opinion may not be given. A qualified opinion is suitable when accounting procedures used do not conform to generally accepted accounting principles (GAAP). Inadequate disclosures in the notes to the financial statements, estimation uncertainty or the lack of a statement of cash flows are also grounds for a qualified opinion.

Layout of Auditor’s Report

A qualified opinion is listed in the third and final section of an auditor’s report. The first section of the report outlines management’s responsibilities in regards to preparing the financial statements and maintaining internal controls, while the second section outlines the auditor’s responsibilities. In the third section, an opinion is given regarding the company’s internal controls and accounting records. The opinion may be unqualified, qualified, adverse or a disclaimer.

Qualified vs. Adverse vs. Disclaimer

A qualified opinion is given in matters in which issues discovered in the financial statements are not pervasive and do not misrepresent the actual financial position of a business. It is a reflection of the auditor’s inability to give an unqualified opinion. If the issues discovered during the audit result in material misstatements, the opinion is escalated to an adverse opinion. This opinion results in the company needing to reissue and complete another audit of its financial statements, while a qualified opinion is still acceptable to lenders, creditors and investors. If an auditor is unable to complete an accurate audit report, it may issue a disclaimer of opinion. This indicates neither an unqualified nor qualified opinion regarding the financial statements, while a qualified opinion still gives an audit opinion regarding a majority of the financial statements.


Further Reading


The role of economic trade-offs in the audit opinion decision: An empirical analysis
journals.sagepub.com [PDF]
This study examines the relationship between qualified audit opinions and earnings management, as measured by discretionary accruals (accounting earnings management) and abnormal production cost (real earnings management), for listed firms on the Tehran …

Predicting audit qualifications with financial and market variablesPredicting audit qualifications with financial and market variables
www.jstor.org [PDF]
This study examines the relationship between qualified audit opinions and earnings management, as measured by discretionary accruals (accounting earnings management) and abnormal production cost (real earnings management), for listed firms on the Tehran …

Evaluating firms in financial distress: An event history analysisEvaluating firms in financial distress: An event history analysis
clutejournals.com [PDF]
This study examines the relationship between qualified audit opinions and earnings management, as measured by discretionary accruals (accounting earnings management) and abnormal production cost (real earnings management), for listed firms on the Tehran …

Earnings management and the audit opinion: Evidence from MalaysiaEarnings management and the audit opinion: Evidence from Malaysia
www.emerald.com [PDF]
This study examines the relationship between qualified audit opinions and earnings management, as measured by discretionary accruals (accounting earnings management) and abnormal production cost (real earnings management), for listed firms on the Tehran …

Qualified audit opinions and auditor switchingQualified audit opinions and auditor switching
www.jstor.org [PDF]
This study examines the relationship between qualified audit opinions and earnings management, as measured by discretionary accruals (accounting earnings management) and abnormal production cost (real earnings management), for listed firms on the Tehran …

The economic determinants of auditor compensation in the initial public offerings marketThe economic determinants of auditor compensation in the initial public offerings market
www.jstor.org [PDF]
This study examines the relationship between qualified audit opinions and earnings management, as measured by discretionary accruals (accounting earnings management) and abnormal production cost (real earnings management), for listed firms on the Tehran …

A political–economic analysis of auditor reporting and auditor switchesA political–economic analysis of auditor reporting and auditor switches
link.springer.com [PDF]
This study examines the relationship between qualified audit opinions and earnings management, as measured by discretionary accruals (accounting earnings management) and abnormal production cost (real earnings management), for listed firms on the Tehran …

Reactions of the Spanish capital market to qualified audit reportsReactions of the Spanish capital market to qualified audit reports
www.tandfonline.com [PDF]
This study examines the relationship between qualified audit opinions and earnings management, as measured by discretionary accruals (accounting earnings management) and abnormal production cost (real earnings management), for listed firms on the Tehran …



Q&A About Qualified Opinion


If there are no exceptions specified then what kind of qualification will be given out by your firm at that time?

An

When would you give a disclaimer instead of issuing a qualified opinion?

When you cannot determine whether or not transactions were properly recorded due to insufficient evidence, you will issue a disclaimer instead of giving out another type of qualification such as unqualified, adverse, or adverse with explanation (AWE).

What does it mean when it says ""Inadequate disclosures in notes to financial statements""?

It means inadequate disclosures were made about transactions within notes to their financial statements.

What kind of users rely on audit reports?

Creditors and investors rely on audit reports from Supreme Audit Institutions (SAI) to make decisions on investments.

How do you know if an auditing report contains disclaimer or adverse opinion paragraph(s)?

If it contains disclaimer paragraph(s), it would be called Qualified Opinion . If it contains adverse opinion paragraph(s), it would be called Disagreed Opinion .

How do you know if there are any limitations in regard to accounting procedures used by an organization?

You can tell if there are any limitations in regard to accounting procedures used by reading the third section of their audit report.

What is a qualified opinion?

A qualified opinion is a statement issued after an audit that suggests the information provided was limited in scope and or the company being audited has not maintained GAAP accounting principles.

Why would a professional auditor issue a qualified opinion?

The auditor may have been unable to gather sufficient evidence for various aspects of the financial statements.

Where is this section found within an audit report?

This section is listed as part three within an audit report and typically comes after sections one and two which outline management's responsibilities, internal controls, and auditors responsibilities respectively.

What does an auditor's report certify?

An audit report certifies that the financial statement is reliable.

Are there different kinds of auditing reports?

Yes, there are three kinds - Unqualified Opinion , Qualified Opinion , Disagreed Opinion .

What does ""with the exception of"" mean in regards to a qualified opinion?

It means with the exception of specific areas.

What kind of entities use audit reports?

Governments, legislative bodies and anti-corruption entities use audit reports for accountability purposes.

How does a qualified opinion bear no reflection on the financial standing or operational efficiency of an organization?

A qualified opinion bears no reflection on an organizations financial standing or operational efficiency.

How do auditing reports increase credibility of nancial statements?

Auditing Reports increase credibility by providing evidence that controls were in place during the preparation process for nancial statements, which increases investor reliance on them.

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