A qualified opinion is issued in an auditor’s report accompanying a company’s audited financial statements. This opinion suggests either a scope limitation or a non-pervasive material issue in the application of generally accepted accounting principles (GAAP).
Essential Takeaways
- A qualified opinion is one of four possible auditor’s opinions on a company’s financial statements.
- The other types are unqualified, adverse, or a disclaimer of opinion.
- It indicates there was either a scope limitation or a material issue that was not pervasive, or there was inadequate footnote disclosure in the financial statements.
- Despite noted exceptions, qualified opinions generally still assure that financial statements are fairly presented and are acceptable to lenders, creditors, and investors.
- Typically found in the third section of an auditor’s report, following an outline of management and auditor responsibility.
What Constitutes a Qualified Opinion?
Qualified opinions may arise if a company’s financial records deviate from GAAP in a non-pervasive manner. According to auditors, non-pervasive misstatements do not misrepresent the company’s overall financial position or significantly influence financial statement users’ decisions.
A qualified opinion is warranted also due to insufficient evidence during the audit. Without sufficient verification, the auditor cannot render an unqualified opinion. Factors justifying a qualified opinion include inadequate note disclosure, significant estimation uncertainties, or the absence of a cash flow statement.
Representation of a Qualified Opinion
This opinion appears in the third section of the auditor’s report. Initially, the report delineates management’s responsibility for preparing statements and maintaining internal controls, followed by the auditor’s duties. The third section renders the auditor’s verdict on the company’s records and internal controls in qualified terms when full verification is lacking.
Typically, auditors qualify their remarks with statements like “except for the following,” indicating unverifiable facets yet assuring overall truthful representation. Qualifications do not equate severe implications like business insolvency or falsified data, but highlight specific unverified areas.
Qualified Opinion Compared to Other Opinions
A qualified opinion contrasts with unqualified opinions, which endorse statements as entirely free from material misstatements. An unqualified opinion is the favorable and most common audit result.
If material misstatements impacting user decision-making are found, auditors issue an adverse opinion. Such significant concerns necessitate re-audit of financial statements. Qualified opinions, while noting exceptions, remain acceptable to many stakeholders.
Where insufficient records or cooperation impede audit completion, auditors issue a disclaimer of opinion, indicating no definitive stance on the financial statements.
Related Terms: unqualified opinion, adverse opinion, disclaimer of opinion.
