Disclaimer Of Opinion

Updated on March 29, 2024
Article byJyotsna Suthar
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Disclaimer Of Opinion?

A Disclaimer of Opinion is a statement issued by auditors in audit reports to indicate that they could not form an opinion on the accuracy, fairness, and validity of an entity’s financial statements. The primary purpose of this statement is to state that adequate information, which is necessary to form a solid opinion, was not available to them for certain reasons.

Disclaimer Of Opinion

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The disclaimer of opinion concept indicates that auditors cannot confidently state if a company’s financial statements are true. This may happen due to several reasons, such as a lack of audit evidence, incomplete accounting records, fraudulent activities (suspected or confirmed), management restrictions, a company’s disinclination to provide information, etc.

Key Takeaways

  • A disclaimer of opinion in an audit refers to an auditor’s statement regarding their inability to form an audit opinion after studying an entity’s financial statements.
  • Auditors issue such statements when they cannot find sufficient audit evidence, do not receive the required information from management, do not have access to or lack the tools to execute audit procedures, or face specific limitations, among other things.
  • Disclaimers are presented as a separate section in audit reports to ensure such statements receive the required focus and substantive reasons are provided in the prescribed format.
  • It is advisable not to include other information, like the audit procedures followed, as such unnecessary points may divert a reader’s attention.
  • Adverse opinion and qualified opinion are two other types of audit opinions.

Disclaimer Of Opinion Explained

A disclaimer of opinion protects auditors in cases where they cannot form an opinion for reasons outside their control. When they cannot access financial information for reasons beyond their control, such a statement becomes necessary. Hence, this disclaimer is added to the audit report.

Audit reports are a crucial part of the assessment and analysis of an entity’s books of accounts and financial statements. Auditors are responsible for determining audit risks (if any) within these records. They thoroughly scrutinize and analyze a company’s financial information to identify and highlight material misstatements (if any). However, if access to the required records is denied or restricted, they may not be able to form an opinion.

Sometimes, auditors may not have the right tools to conduct audit procedures. In such cases, auditors issue an audit disclaimer of opinion and state the reason for their stand. They issue such statements to protect themselves from potential legal repercussions arising from their opinions in case they are proven wrong.

Several factors can cause an auditor to issue a disclaimer of opinion in a company. However, if a client provides all the information necessary to conduct an audit and the auditor still cannot form an opinion after a comprehensive examination of a company’s accounting and financial information, they must issue a disclaimer until a replacement opinion is issued. Before they take this step, auditors must state all substantive reasons for this disclaimer.

For a company, disclaimers can prove catastrophic. An audit disclaimer of opinion harms a company’s reputation and goodwill. This is because audit disclaimers discourage investors and stakeholders from investing their resources in companies that come with a disclaimer tag. Before issuing a disclaimer of opinion, auditors must provide a basis or justification for their decision.

Auditing Standard (AS) 3101, which refers to The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, requires auditors to check if the financial statements comply with the auditing standards issued by the Public Company Accounting Oversight Board (PCAOB) in the United States. If an auditor finds records do not adhere to the Generally Accepted Accounting Principles (GAAP), they cannot issue an unqualified opinion. This means they will need to issue a disclaimer.

Disclaimers must be stated in a separate paragraph, along with the reasons. Auditors must state why and how they were prevented from issuing a clear opinion about a company’s books. Auditing Standards (AS) 3105 – Departures from Unqualified Opinions and Other Reporting Circumstances defines this requirement.

Auditors must not provide unnecessary information, such as audit procedures or audit report features, alongside such disclaimers. This is because any irrelevant or unnecessary information can distract readers from the reasons for which the disclaimer was issued, impacting the gravity of the situation.


Let us study some examples of disclaimers of opinion in companies to understand the concept in detail.

Example #1

Suppose Chelsey, an auditor from Synergy & Balance Accounting, was asked to examine the financial statements of Verity Public Ltd. in March 2023. A meeting of the company’s board of directors was also held in the first week of March 2023 to discuss several things, including expansion plans. When Chelsey asked for the minutes of this meeting, the company refused to share them.

Due to this, Chelsey could not verify if any pertinent or material aspect of the business was discussed during this meeting. She also could not be sure about how the decisions made in this meeting were going to affect the business in the future. She explored other accounting and auditing procedures to check if this limitation could be addressed. However, Chelsey did not find anything substantial to help her overcome this problem.

Chelsey believed that transparency, stakeholder interest, and investor confidence were at stake in this situation. Hence, she issued a disclaimer of opinion stating that a lack of information and the corresponding limitations she encountered during the audit forced her to publish a disclaimer.

Example #2

According to a January 2024 news article, Tee International’s FY 2023 financial statements came with a disclaimer of opinion. The company’s independent auditor, Foo Kon Tan LLP, could not arrive at an opinion about the financial statements of the company as of September 30, 2023. The auditors appointed for this assignment were unable to understand and verify the company’s performance due to inadequate information about its equity and cash flow positions.

Foo Kon Tan LLP had already issued a disclaimer before this instance. The auditor’s report dated January 13, 2023, contained a disclaimer due to an earlier inconsistency found in the company’s accounting records. The issue of disclaimers was attributed to a lack of sufficient appropriate information on multiple occasions.

This shows that an auditor holds full responsibility and liability while auditing financial statements of a company.

Pros And Cons

Let us study the advantages and disadvantages of issuing such a disclaimer.


  1. It indicates an auditor’s dedication to maintaining professional standards while executing auditing tasks assigned to them.
  2. It enables stakeholders to make decisions based on reliable information about a company’s financial health.
  3. Auditors cannot be held liable later since they clearly state their inability to express an opinion through such a disclaimer.


  1. It negatively impacts a company’s reputation and adversely affects investor decision-making.
  2. Companies may be subject to legal consequences, resulting in fines and penalties or even lawsuits in some cases.
  3. A disclaimer may undermine any and every effort a company makes to build its reputation and affect its credit rating for a significant period.

Disclaimer Of Opinion vs Adverse Opinion vs Qualified Opinion

A disclaimer of opinion, adverse opinion, and qualified opinion are types of audit opinions. They differ in the following manner.

ParametersDisclaimer Of OpinionAdverse OpinionQualified Opinion
Meaning and scopeIt refers to a statement issued when an audit opinion cannot be formed.An adverse opinion refers to a statement issued when an auditor finds a material misrepresentation in a company’s financial statements, indicating a misleading financial position.A qualified opinion is issued when an auditor finds that a company’s financial statements are in order except for certain limitations (one or more).  
ApplicationIt is used when an auditor cannot express a reliable opinion about an entity’s financial statements due to insufficient evidence, unavailability of records, inability to perform audit procedures, or any other limitations.It is expressed when auditors detect material misstatements, causing financial statements to be categorized as “not representing a fair image”.Such an opinion is issued when there is non-compliance/s with accounting procedures, a lack of sufficient audit evidence, or a lack of information about future business events or decisions.
Opinion No opinion is formed and expressed in this case.Auditors express an adverse or negative opinion about an entity’s financial statements.Auditors express an opinion while excluding certain limitations related to specific matters observed during an audit.

Frequently Asked Questions (FAQs)

1. How to write a disclaimer of opinion?

Auditors follow a prescribed format to write such disclaimers.

• Title (the section is titled Disclaimer)
• Introduction (substantive reasons are listed about why an auditor could not form an opinion)
• Scope (the scope is defined, along with the limitations an auditor observed during the audit process)
• Basis (a detailed explanation about the limitations is given)
• Responsibility (states that management is responsible for financial statements preparation)
• Conclusion (summarizes the findings and highlights why an auditor could not form an opinion)
• Signature

Studying disclaimer of opinion samples can help readers understand how these statements work.

2. What is the basis for a disclaimer of opinion?

The basis for a disclaimer offers detailed information on the substantive reasons that resulted in auditors finding themselves ill-equipped to form an audit opinion. It states the relevant limitations, restrictions, management conditions, or uncertain situations that limited the scope, extent, or efficacy of the audit conducted.

3. What is the impact of a disclaimer of opinion on companies?

Audit reports are considered crucial documents that outline the credibility of the financial statements of a business. They also highlight a company’s financial position and the accuracy of its financial records. However, if an auditor issues a disclaimer, it raises questions about the company’s financial health and reliability. This can have serious and long-term effects on a company’s reputation and revenue.

This article has been a guide to what is Disclaimer Of Opinion. Here, we explain its examples, comparison with adverse & qualified opinions, and pros & cons. You may also find some useful articles here –

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