The audit opinion is the statement expressed by independent auditors to their client’s financial statements as the result of the auditors’ examination.

    The audit opinion is very important for stakeholders because it lets them know whether or not the information in the financial statements they are using is correct. They can use that information for their decision-making. The audit opinion also indirectly informs the users of financial statements how the integrity of senior management and the directors of the entity are.

    If auditors follow the international standard, then the ISA that use as the principle to form audit opinion is ISA 700 and ISA 705.

    ISA 700 is used to form unmodified audit opinions, and ISA 705 is the guidance that should use by the auditor to issue a modified opinion.

    As required by the standard, auditors will have to issue the opinion on the client’s financial statements whether those financial statements, after being audited, are prepared in all material respected and in compliance with the framework that they used or not.

    And if the financial statements meet all of these things, then unmodified opinions shall be issued.

    Yet, if the financial statements have some problem, auditors need to use ISA 705 to form their opinion based on those problems.

    Audit Opinion Flow Chart

    In general, there are two main types of audit opinions: Unmodified and Modified Opinions.

    An unmodified opinion , auditors issue this opinion to financial statements prepared in all material respect and comply with accounting standards being used and the applicable regulation.

    However, for modified opinion , three sub-opinions are issued to financial statements that are not prepared in a material respect to other matters. We will discuss this later.

    Those three modified opinions are qualified , adverse , and disclaimer opinions .

    So, in total, there are four types of audit opinion right? Unmodified(unqualified), qualified, adverse, and disclaimer opinion.

    Let’s see the Audit Opinion Flow Chart below to gain a better understanding:

    See the audit Approach here: Audit Approach

    Now let’s check what are those four audit opinions and what they are issued for.

    Type of audit’s opinions:

    Here is the list of four types of the audit opinion,

    Unmodified Opinion:

    As mentioned above, unmodified opinion is expressed to the financial statements prepared in all material respect and complying with the applicable framework.

    This opinion is issued once auditors obtain sufficient and appropriate audit evidence of the financial statements due to their testing.

    Please note that the auditor is not providing absolute assurance on the financial statements. That is why it uses the words “in all material respect.”

    All material respect here means there is no material misstatement in the financial statements, but there might be an immaterial misstatement.

    It is okay to have immaterial misstatements in the financial statements as it is not lead users of FS to make the wrong decision. To form an unmodified opinion, ISA 700 is the reference to follow.

    Now let’s move to the other three opinions of modified opinions.

    Qualified Opinion:

    The qualifying opinion is the type of modified audit opinion where auditors conclude after their testing that there is a material misstatement found in the financial statements. However, those misstatements are not pervasive. Pervasive here is a bit subjective as it is based on the auditor’s judgment.

    But, as said in standard, misstatement is pervasive in financial statements if those misstatements are not affecting the financial statements and users’ decision-making.

    The auditor may issue a qualified opinion on the opening balance of the previous year’s financial statements that they did not audit.

    In terms of seriousness, the qualified audit opinion is more serious than unqualified, yet it is better than adverse and disclaimers. We will talk about disclaimers and adverse opinions later in this article.

    Adverse Opinion:

    The adverse opinion is issued to the financial statements where auditors examined and concluded that those financial statements are materially misstated and pervasive. Compared to qualified opinion, adverse opinion is more serious.

    This opinion is the message to users of financial statements that they should not rely on these financial statements in their decision-making.

    This opinion is a bit different from a qualified opinion. The auditor found material misstatements in the financial statements for a qualified opinion, but those misstatements are not pervasive.

    Yet, in Adverse opinion , misstatements are both material and pervasive.

    Disclaimer of Opinion:

    Disclaimer of opinion , by the way, is different from both qualified and adverse. The auditor issued the disclaimer of opinion where they could not obtain and were unable to access the audit evidence for an individual item or in aggregation to support their testing.

    Auditor believes that those items that they cannot access and obtain information could be materially misstated and pervasive.

    This happens after the auditor tries their best to negotiate with the client to obtain all of that important information. The client still rejects it, no matter whether it is the intention or unintentional.

    What audit standards do auditors use as the basis to express their opinion?

    It is depending on the country where the auditor firm is operating in. Auditors will perform their work based on the local authority’s audit standards that control the audit firms.

    However, auditors should also make sure that those practices are not so far from the international auditing standard.

    For example, if your firm is operating in Thailand, that means your firm needs to follow Thailand’s audit standards. However, in practice, maybe some local standards are not totally agreed to by ISA.

    In this case, auditors need to check with the international audit standard what it is required the auditor to do on that point. ISA 700 and ISA 705 is the standard that guides auditors on how to deal with modified and unmodified audit opinion.

    Where can we find the audit opinion in the audit report?

    The audit opinion is stated in the audit report in the opinion section. Normally, in the audit report, there is significant important information that we could find.

    For example, the entity’s background, a list of four financial statements and they are noted, a list of all significant accounting policies, opinion sections including basics of opinion and opinion, and Others matter.

    In the audit report, we also could find auditor roles and responsibilities on financial statements and management’s roles and responsibilities to financial statements.

    This is to ensure that the users who use the audit report could clearly understand that there is no conflict of interest between auditors and management’s roles in preparing financial statements.

    If you have any comments on this article, please comment below or email me to contact me here. I will manage to respond.

    Written by Sinra

    Which type of audit opinion is preferred when analyzing financial statements?
    An unqualified opinion is a “clean” opinion and indicates that the financial statements present the company's performance and financial position fairly in accordance with a specified set of accounting standards. more
    What type of accounts affects the statement of financial Position what about the income statement?
    Assets, liabilities, owner's equity, revenue and expenses -- the five main elements of accounting -- each affect a financial statement differently. How each element affects a financial statement, however, depends on whether the accounting system is cash or accrual basis accounting. more
    Which is not type of financial statement?
    Trial Balance is not a financial statement. Trial Balance is a list of closing balances of ledger accounts on a certain date and is the first step towards the preparation of financial statements. more
    What type of loans do sellers prefer?
    "Conventional loans have higher minimum requirements than FHA and require a larger down payment," Yates said. "Sellers prefer a buyer with conventional financing over FHA financing because they feel the buyer is in a better financial position." more
    What type of bed do dogs prefer?
    Do dogs prefer hard or soft beds? The ideal dog bed is a perfect blend of soft yet firm. Your dog's individual needs will determine what dog is a perfect fit. For example, soft, memory foam beds are best for senior dogs with aging joints but harder beds may be better for adult dogs. more
    What type of resume do employers prefer?
    Chronological resume Chronological resume This is the most common type of resume format and is generally preferred by most hiring managers. A chronological resume leads with your work history, which should list your current and previous positions in reverse chronological order. more
    Can a statement be an opinion?
    An opinion is a judgment, viewpoint, or statement that is not conclusive, rather than facts, which are true statements. more
    What is audit and its type?
    Auditing is the process of reviewing and confirming your financial reports. Audits verify that you've created accurate and reliable financial reports and that no fraudulent activities are happening within the business. There are three main types of audits: internal, external, and government or IRS audits. more
    What is Type I Type II Type III error?
    Type I error: "rejecting the null hypothesis when it is true". Type II error: "failing to reject the null hypothesis when it is false". Type III error: "correctly rejecting the null hypothesis for the wrong reason". more
    What body type do most guys prefer?
    According to a University of Texas at Austin study, men are most attracted to women who have a waist that is approximately 30 percent narrower than their hips, or a waist-to-hip ratio of 0.7. This isn't a current fad, either; it's a built-in biological preference, the research found. more
    Which type of income statement account has the same type of balance as the retained earnings account?
    The income statement account with the same type of balance as the Retained Earnings account is the Revenue account. more

    Source: www.wikiaccounting.com

    You may be interested in...

    What are Level 1 assets?

    Where does it say solitary as an oyster?

    Is Dumbledore a pureblood?

    How do you print a word count in Python?

    How much does a IRS agent make?

    Can I get a Doberman if I have a cat?

    What is the difference between a trapped nerve and sciatica?

    How many calories does 50 squats burn?

    Does anemia make your head feel weird?

    How is healthcare paid for in Cuba?

    What does pan mean in movies?

    Does everyone have an NHS Number?

    How can I improve the elasticity of my face naturally?

    What happens when a layby expires?

    What language is spoken in Mariupol?

    About Privacy Contact
    ©2022 REPOKIT