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An auditor's opinion is a statement made by an independent auditor about the accuracy and fairness of a company's financial statements.
It provides an opinion on whether there are any major misstatements in the financial statements based on an audit of the processes and documents used to create the statements. An accountant's opinion is a different name from an auditor's opinion.
Unqualified, qualified, adverse, and disclaimer are the four different categories of auditor's views. A clean opinion, also known as an unqualified opinion, indicates that the auditor identified no substantial misstatements or mistakes in the financial statements and that they are in accordance with generally accepted accounting standards (GAAP).
A qualified opinion is provided when the auditor discovers some flaws or restrictions in the financial statements that prevent them from providing an unqualified opinion, but the problems are not serious enough to have a significant impact on the company's overall financial status.
An adverse opinion is given when the auditor finds material misstatements or violations of GAAP that affect the reliability and credibility of the financial statements. A disclaimer of opinion is given when the auditor is unable to obtain sufficient and appropriate audit evidence to form an opinion on the financial statements, usually due to a severe scope limitation or a lack of independence.
An auditor's perspective is essential because it ensures the reliability and accuracy of the financial accounts for those who use financial statements, such as creditors, regulators, investors, and others. An auditor's opinion may have an effect on the business's reputation, performance, and ability to access capital markets.
An example of an unqualified auditor's opinion is:
The ABC Company and its affiliates (the "Company") consolidated balance sheets as of December 31, 2020, and 2019, as well as the corresponding consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively the "financial statements"), have all been audited by our firm.
In accordance with US generally accepted accounting principles, the financial statements, in our opinion, fairly present the Company's financial position as of December 31, 2020, and 2019, as well as the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020.
An example of a qualified auditor's opinion is:
The accompanying consolidated balance sheets of XYZ Company and its subsidiaries (the "Company") as of December 31, 2020 and 2019 as well as the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2020, as well as the related notes (collectively referred to as the "financial statements"), have all been audited by us.
With the exception of what is covered in the sentence that follows, we carried out our audits in conformity with generally accepted auditing standards in the United States of America. We must design and carry out the audit in accordance with those criteria in order to establish a reasonable level of assurance regarding the absence of material misstatement in the financial statements.
As mentioned in Note X to the financial statements, the Company switched from using FIFO to LIFO for inventory accounting in 2020. In order to determine whether this change was justified by a change in circumstances or was done for other reasons, we were unable to gather sufficient suitable audit data. As a result, we were unable to identify whether this adjustment complied with generally accepted accounting principles in the United States.
The financial statements referred to above, in our opinion, accurately reflect the financial position of XYZ Company as of December 31, 2020, and 2019, as well as the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, with the possible exception of the effects of not being able to examine evidence regarding management's intent to change its method of accounting for inventory as discussed in the preceding paragraph.
An example of an adverse auditor's opinion is:
The financial statements of ABC Company that are attached have been audited by our firm. They include the balance sheet as of December 31, 2020, the income statement, the statement of changes in equity, and the cash flow statement for the just-completed period, as well as a summary of key accounting principles and other explanatory data.
We believe that the financial statements do not accurately reflect the financial position of ABC Company as of December 31, 2020, as well as its financial performance and cash flows for the year that ended in accordance with International Financial Reporting Standards (IFRS), due to the significance of the issues raised in the Basis for Adverse Opinion section of our report.
An example of a disclaimer is:
We were hired to conduct an audit of the XYZ Company's associated financial statements, which include the balance sheet as of December 31, 2020, as well as the corresponding income, equity, and cash flow statements and the notes to the financial statements.
Regarding the XYZ Company's supplementary financial statements, we express no comment. We were unable to gather enough pertinent audit evidence to provide an audit opinion on these financial statements because of the importance of the issues discussed in the Basis for Disclaimer of Opinion portion of our report.
