What is an Accountant's Opinion
An accountant's opinion is a statement by an independent auditor expressing its view regarding the quality of information contained in a set of financial reports. For audits of companies in the U.S., the opinion may be an unqualified opinion in accordance with generally accepted accounting principles (GAAP), a qualified opinion, or an adverse opinion.
BREAKING DOWN Accountant's Opinion
The accountant's opinion is presented in an auditor's report that accompanies an annual filing (Form 10-K). The 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 accountant's opinion is given. The next section states the opinion. If applicable, another section may be presented to provide further explanation regarding an opinion that is not unqualified.
Types of Accountant's Opinions
The three opinion types are unqualified, qualified and adverse. An unqualified opinion is also known as a clean opinion. The accountant reports an unqualified opinion if the financial statements are judged to be free of material misstatements. In addition, an unqualified opinion is 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 given when a company's financial records have not entirely been presented in accordance with GAAP. Although the wording of a qualified opinion is very similar to an unqualified opinion, the accountant provides an additional paragraph in its opinion letter explaining its reasons why it believes certain exclusions to a clean opinion exist.
The most unfavorable opinion a company may receive is an adverse opinion, indicating that its 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 lack of financial records or insufficient cooperation from management, the accountant will issue a disclaimer of opinion. This indicates that no opinion over the financial statements could be reasonably rendered. However, note that a disclaimer of opinion is not considered an accountant's opinion.