What is an 'Auditor's Opinion'
An auditor's opinion is a certification that accompanies financial statements based on an audit of the accountant's opinion of the procedures and records used to produce the statements regardless of whether material misstatements exist in the financial statements. For audits of companies in the United States, the opinion may be an unqualified opinion in accordance with generally accepted accounting principles (GAAP), a qualified opinion or an adverse opinion. The audit is performed by an accountant who is independent of the company being audited.
BREAKING DOWN 'Auditor's Opinion'The audit opinion is presented in an auditor’s report. The audit report begins with an introductory section outlining the responsibility of management and the responsibility of the audit firm. The second section identifies the financial statements on which the audit opinion is given. A third section outlines the auditor’s opinion. Although it is not found in all audit reports, a fourth section may be presented as further explanation regarding a qualified opinion or an adverse opinion.
An unqualified opinion is also known as a clean opinion. The auditor reports an unqualified opinion if the financial statements are presumed to be free from material misstatements. In addition, an unqualified opinion is given over the internal controls of an entity if management has claimed responsibility for its establishment and maintenance, and the auditor has performed fieldwork to test its effectiveness.
A qualified opinion is given when a company’s financial records have not been presented in accordance with GAAP. Although the wording of a qualified opinion is very similar to an unqualified opinion, the auditor provides an additional paragraph including exclusions from the cleanliness of the financial statements and points out why the auditor report is not unqualified.
The most unfavorable opinion a business may receive is an adverse opinion. An adverse opinion indicates financial records are not in accordance to GAAP and are grossly misstated. An adverse opinion is an indicator of fraud, and public entities that receive an adverse opinion are forced to correct their financial statements and have the financial statements re-audited. Investors, lenders and other financial institutions do not typically accept financial statements with adverse opinions.
Disclaimer of Opinion
In the event the auditor is unable to complete the audit report due to absence of financial records or insufficient cooperation from management, the auditor issues a disclaimer of opinion. This is an indication that no opinion over the financial statements was able to be determined. A disclaimer of opinion is not an opinion itself.