In the government, legislative and anti-corruption entities use audit reports to keep track of the actions of public administrators on behalf of citizens.
The report is only an opinion on whether the information presented is correct and free from material misstatements, whereas all other determinations are left for the user to decide.
The four reports are as follows: An opinion is said to be unqualified when he or she does not have any significant reservation in respect of matters contained in the Financial Statements.
US auditing standards require that the title includes "independent" to convey to the user that the report was unbiased in all respects.
[4] The following is an example of a standard unqualified auditor's report on financial statements as it is used in most countries, using the name ABC Company as an auditee's name.
Note that this report is acceptable only for periods ending before December 15, 2012: Board of Directors, Stockholders, Owners, and/or Management of ABC Company, Inc. 123 Main St. Anytown, Any Country
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20XX, and the results of its operations and its cash flows for the year then ended in accordance with generally accepted accounting principles in (the country where the report is issued).
[5] For periods ending after December 15, 2012, the following is an example of a standard unqualified auditor's report on financial statements as it is used in most countries, using the name ABC Company, which was incorporated in California, as an auditee's name: Board of Directors, Stockholders, Owners, and/or Management of ABC Company, Inc. 123 Main St. Anytown, Any Country
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.
Detailed below: A Qualified Opinion report is issued when the auditor encountered one of the two types of situations which do not comply with generally accepted accounting principles, however the rest of the financial statements are fairly presented.
The scope paragraph is edited to include the following phrase in the first sentence, so that the user may be immediately aware of the qualification.
For a qualification arising from a deviation from GAAP, the following phrase is added to the opinion paragraph, using the depreciation example mentioned above: For a qualification arising from a scope of limitation, the following phrase is added to the opinion paragraph, using the inventory example mentioned above: An Adverse Opinion Report is issued on the financial statements of a company when the financial statements are materially misstated and such misstatements have pervasive effect on the financial statements.
An Adverse Opinion is issued when the auditor determines that the financial statements of an auditee are materially misstated and, when considered as a whole, do not conform with GAAP.
It is considered the opposite of an unqualified or clean opinion, essentially stating that the information contained is materially incorrect, unreliable, and inaccurate in order to assess the auditee's financial position and results of operations.
23: Recommendation Made To Clarify Accountant's Representations When Opinion Is Not Expressed was published in order to provide guidance to auditors in presenting a disclaimer.
Additionally, since the audit was not completely and/or adequately performed, the auditor refuses to accept any responsibility by omitting the last sentence of the paragraph.
Similar to the qualified and the adverse opinions, the auditor must briefly discuss the situations for the disclaimer in an explanatory paragraph.
The following is a draft of the three main paragraphs of a disclaimer of opinion because of inadequate accounting records of an auditee, which is considered a significant scope of limitation: We were engaged to audit the accompanying balance sheet of ABC Company, Inc. (the "Company") as of December 31, 20XX and the related statements of income and cash flows for the year then ended.
The Company does not maintain adequate accounting records to provide sufficient information for the preparation of the basic financial statements.
Our responsibility is to express an opinion on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As discussed in Note (X) to the financial statements, the Company has suffered recurring losses and has a net capital deficiency.
Opinion shopping is a term used by external auditors and, after the Enron and Arthur Andersen accounting scandals, the media and general public refer to auditees who contract or reject auditors based on the type of opinion report they will issue on the auditee.