What is a Qualified Opinion
A qualified opinion is a statement issued after an audit is completed by a professional auditor, suggesting that the information provided is limited in scope and/or the company being audited has not maintained GAAP accounting principles. Basically, auditors who deem audits as qualified opinions are advising whomever is reading the document that the information within the audit is not complete or the accounting methods used by the company do not follow the Generally Accepted Accounting Principles (GAAP).
BREAKING DOWN Qualified Opinion
A qualified opinion states the financial statements of a corporate 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 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 of opinion.
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. The adverse 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.