What Is an Accountant's Opinion?
An accountant's opinion is a statement written by an independent certified accountant expressing its view regarding the quality of information contained in a set of financial reports.
For audits in the United States, the opinion may be unqualified, qualified or adverse. Judgments vary and are based on how much a company's financial statement complies with generally accepted accounting principles (GAAP), a common set of standards and procedures issued by the Financial Accounting Standards Board (FASB) that all publicly traded entities in the U.S. are required to follow.
- An accountant's opinion is a statement by an independent accountant expressing its view regarding the quality of information in a set of financial reports.
- For audits in the U.S., the opinion may be unqualified and in accordance with generally accepted accounting principles (GAAP), qualified or adverse.
- An accountant's opinion accompanies an annual filing (Form 10-K) and is broken down into three sections—or four if the opinion is not unqualified.
- If an accountant is unable to complete an audit due to a lack of financial records or insufficient cooperation from management, it will issue a disclaimer of opinion.
Understanding an Accountant's Opinion
Financial statements, written records that convey the business activities and financial performance of a company, are pored over by investors and analysts. Their contents help to determine the direction of share prices, so it is important that they are prepared correctly, reflect the truth and can easily be compared with others.
An accountant's opinion seeks to provide some assurances. Presented in an auditor's report that accompanies an annual filing (Form 10-K), these concise statements, issued by a person qualified to piece together and inspect financial accounts, are tasked with evaluating the accuracy of a company's bookkeeping.
Accountant opinions are usually broken down into at least three sections:
- An introductory statement outlining the responsibility of management and the audit firm.
- Identification of the financial statements on which the accountant's opinion is given.
- The opinion.
If applicable, another section may be presented to provide further explanation regarding an opinion that is not unqualified.
The absence of an accountant's opinion in the annual filings of public-traded companies may raise alarm bells.
Types of Accountant's Opinions
The type of report issued depends on what the accountant responsible for scrutinizing a company's financial accounts discovers. In general, there are three different opinions that can be logged. They are:
An unqualified opinion, also known as a clean opinion, is reported by the accountant if the financial statement is judged to be free of material misstatements. In other words, the accountant believes that all changes, accounting policies, and their application and effects, have accurately been disclosed.
An unqualified opinion is also given over the internal controls of an entity if management has claimed responsibility for its establishments and maintenance, and the accountant has performed fieldwork to test its effectiveness.
A qualified opinion is issued when a company's financial records have not entirely been presented in accordance with GAAP. The proper accounting standards haven't been followed, although no misrepresentation has been identified and the company is deemed to have done nothing wrong.
This opinion may be given when a company's financial records deviate in some instances from GAAP without being pervasive. In such cases, accountants will provide an additional paragraph in opinion letters explaining the reasons why they believe certain exclusions to a clean opinion exist. Typically, they will state what the issues are, so that they can be fixed.
An adverse opinion is the most unfavorable opinion a company may receive. It indicates that financial records violate many or key GAAP rules and contain material misstatements. An adverse opinion may be an indicator of fraud, and public entities that receive an adverse opinion are forced to correct their financial statements and yield to a follow-up audit. Investors, lenders and other financial institutions typically reject financial statements with adverse opinions.
In the event that an accountant is unable to complete an audit due to a lack of financial records or insufficient cooperation from management, the accountant will issue a disclaimer of opinion. A disclaimer of opinion is not considered an accountant's opinion and simply indicates that no opinion over the financial statements could be reasonably rendered.