<img height="1" width="1" style="display:none;" alt="" src="https://px.ads.linkedin.com/collect/?pid=938154&amp;fmt=gif">

Auditor Opinion Reports: Types and What They Mean



What happens after an audit is completed?

In most cases, the company that was audited will breathe a sigh of relief that the process is over but then they have to wait to find out the results of the audit.

Auditors provide opinion reports at the conclusion of an audit that provides company stakeholders with the auditor’s level of assurance regarding the company’s financial statements.

Here are 5 different reports auditors use to share their findings with companies following an audit:

5 Types of Audit Opinion Reports

1. Unqualified Opinion Report

This is the most common type of report issued by auditors. An auditor issues this report when they determine that the financial statements are free from material misstatements and are presented fairly in accordance with Generally Accepted Accounting Principles (GAAP).

Here are some key points about the purpose of an unqualified opinion report:

Reliability: Provides assurance to users of financial statements that the information presented is reliable and free from material misstatement.

Compliance: Indicates that the financial statements have been prepared in accordance with GAAP or other applicable reporting frameworks.

Transparency: Helps promote transparency by providing investors and other stakeholders with the confidence that the financial statements accurately reflect the company's financial position and performance.

Reputation: A positive indicator of a company's financial health and can enhance its reputation with investors, creditors, and other stakeholders.

2. Qualified Opinion Report

An auditor will issue this type of report when they have identified a limitation of scope or a material misstatement in the financial statements but have determined that the misstatement is not pervasive in nature.

The qualified opinion report highlights specific issues or limitations that have led the auditor to modify their opinion on the financial statements. This modification is typically due to a material misstatement, omission, or uncertainty that has been identified by the auditor during the audit process.

Some examples of issues that may lead to a qualified opinion report include:

  • Inadequate documentation of certain transactions or accounts
  • Disagreements with management over accounting treatments
  • Material misstatements due to errors or fraud
  • Scope limitations, such as the inability to obtain sufficient audit evidence

The purpose of a qualified opinion report is to provide transparency to the users of the financial statements by alerting them to the issues or limitations that have been identified by the auditor. This allows the users to make more informed decisions based on the financial information provided in the statements.

A qualified opinion report is less favorable than an unqualified opinion report and may raise concerns among investors, creditors, and other stakeholders, and may impact the company's ability to obtain financing or attract investors.

3. Adverse Opinion Report

An adverse opinion report from an auditor is a type of auditor opinion that expresses a negative view of a company's financial statements. The purpose of an adverse opinion report is to indicate that the financial statements being audited are materially misstated or misleading and do not fairly present the financial position or performance of the company.

This report is typically issued when the auditor has identified significant issues or discrepancies in the financial statements that cannot be corrected or resolved through additional audit procedures or adjustments. This could be due to a variety of reasons such as a lack of supporting documentation, significant errors or omissions in the financial statements, or instances of fraud or noncompliance.

The adverse opinion report is intended to alert users of the financial statements (i.e., investors, creditors, and other stakeholders) that the financial statements cannot be relied upon to make informed decisions about the company's financial health or performance. It also serves as a warning that there may be significant risks associated with investing in or lending to the company.

4. Disclaimer of Opinion Report

A disclaimer of opinion report is issued by an auditor when they are unable to express an opinion on the financial statements of an audited entity.

There are several reasons why an auditor might issue a disclaimer of opinion report including:

Scope Limitation

The auditor was unable to obtain sufficient appropriate audit evidence due to limitations on the scope of the audit. For example, the auditor was unable to obtain access to certain financial records or was unable to perform certain audit procedures.

Material Misstatement

The auditor has identified a material misstatement in the financial statements, but the effect of the misstatement is pervasive or cannot be determined. Therefore, the auditor is unable to form an opinion on the financial statements as a whole.

Uncertainty

The auditor is unable to obtain sufficient evidence to support an opinion due to uncertainty regarding the entity's ability to continue as a going concern or other uncertainties related to the financial statements.

The purpose of the disclaimer of opinion report is to alert users of the financial statements that the auditor was unable to provide an opinion on the financial statements as a whole and to provide an explanation of the reasons why.

This report may be a cause for concern for users of the financial statements, as it suggests there may be significant issues with the accuracy or completeness of the financial information being presented.

It's important to note that a disclaimer of opinion report does not necessarily mean that the financial statements are incorrect, but rather that the auditor was unable to provide an opinion on their accuracy due to certain limitations or uncertainties.

5. Management Letter

A management letter is a communication from an auditor to the management of an organization that provides recommendations for improving the organization's internal controls, operations, and financial reporting processes.

The primary purpose of a management letter is to provide management with feedback and suggestions for improving the organization's performance, efficiency, and effectiveness.

(Download Video Transcript)

Here are some of the key objectives of a management letter:

Provide Constructive Feedback

The management letter provides a detailed analysis of the organization's financial reporting and operational processes, highlighting areas where improvements can be made. This feedback can help management identify areas for improvement and take corrective action.

Help Management Understand the Audit Process

The management letter also provides a summary of the audit process, including the scope and findings of the audit. This can help management better understand the audit and its implications for the organization.

Strengthen Internal Controls

The management letter identifies weaknesses in the organization's internal controls and provides recommendations for strengthening them. This can help prevent errors, fraud, and other financial irregularities.

Improve Operational Efficiency

The management letter identifies areas where the organization's operations could be improved such as through better process documentation, more efficient procedures, or the adoption of new technology.

Support Good Governance

The management letter helps to ensure that the organization is operating in compliance with applicable laws and regulations and that it has sound financial and operational management practices in place.

A management letter provides management with insights and recommendations that can help improve the organization's financial and operational performance, strengthen internal controls, and enhance governance and compliance.

Opinions Matter

Auditors play an important role in ensuring the accuracy and transparency of a company’s financial statements. Opinion reports are how auditors communicate with stakeholders on the state of their company’s financial statements.

If you had an audit done recently and are confused about the opinion letter you received, or you are looking to have your company’s financial statements audited for assurance purposes, reach out to one of our accounting professionals.

Request More Information

© 2023 SVA Certified Public Accountants

Share this post:


Biz Tip Topic Expert: Rebecca Muehl, CPA

Rebecca Muehl, CPA

Rebecca is a Senior Manager with SVA Certified Public Accountants specializing in assurance services including audits, reviews, compilations, and agreed-upon procedures engagements for closely-held businesses of varying sizes.

Awards and Affiliations

milwaukee-business-journal-largest-milwaukee-area-accounting-firms-2022-logo2
sva-certified-public-accountant-affiliation-wicpa
SVA_2023_Certification_Badge-white
accountingtoday-white
sva-award-logo-inside-public-accounting-top-200-firms-2023
sva-certified-public-accountant-affiliation-m-power-business-champion-program
sva-certified-public-accountant-affiliation-aicap-ebpaqc-member
2023ECA_Finalist-white
sva-certified-public-accountant-affiliation-aicpa

Locations

Madison, WI
1221 John Q Hammons Dr, Suite 100
Madison, WI 53717
(608) 831-8181

Milwaukee, WI
18650 W. Corporate Drive, Suite 200
Brookfield, WI 53045
(262) 641-6888

Colorado Springs, CO
1880 Office Club Pointe, Suite 128
Colorado Springs, CO 80920
(719) 413-5551

SVA BBB Business Review Man Standing

Contact

(888) 574-4782
info@SVAaccountants.com
BizTips

Are you in the know on the latest business trends, tips, strategies, and tax implications? SVA’s Biz Tips are quick reads on timely information sent to you as soon as they are published.

Connect With Us

Copyright © 2024 SVA Certified Public Accountants | Privacy Policy | Cookie Policy | CCPA