What is an Unqualified Opinion of Auditor?
Unqualified opinion is an opinion concluded by an auditor appointed by the company, where he has made substantial procedures to check that the policies and procedures in place and collected optimum evidence to justify his findings after maintaining audit file and analyzing that the financial statements of an organization, do not include any material discrepancies or misstatements and the same are true and correct to the best of his knowledge.
Example of Unqualified Opinion of Auditor
Let’s take an example of an unqualified opinion.
There is a company A ltd which is manufacturing and selling the different products in the market and the shares of the company are listed in the stock exchange for the trading of the general public. The company appoints M/s B and Co. for the purpose of conducting the audit of the previous financial year’s financial statements of the company and the different controls and practices followed in the company. Auditor M/s B and Co conducts the audit of the company for the previous financial year. After conducting the audit concludes that no material discrepancies or misstatements or errors are found in the financial statements or the working of the Company A Ltd.
So the auditor gives his unqualified report providing his unqualified opinion about the previous financial year’s financial statements of the company and the different controls and practices followed in the company mentioning that in their opinion, financial statements of the company presents the true and the fair view of financial position of A ltd.
This is an example of an unqualified opinion by the auditor about the company. This unqualified opinion enhances overall goodwill of the company which enables it to maintain a clean and positive image in the eyes of its current as well as prospective customers, shareholders, creditors and lenders, investors and potential investors and to the government.
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Advantages of Unqualified Opinion of Auditor
The various different advantages related to the unqualified opinion are as follows:
- For management, it is an additional proof for their work done throughout the year and can showcase its competency leading to further enhancement of the procedures, innovation, and increase in remuneration.
- For shareholders, it acts as an assurance that the work of the management is thoroughly checked and the figures can be relied upon enabling them to trust the management moving forward and re-establishing trust that their money is being utilized optimally.
- For creditors and lenders, a company’s creditworthiness is increased if it has an unqualified opinion leading to the achievement of a better image for the company to raise debt if any required with much more ease at cheaper rates too in the future. It also shows that the company is going to fulfill its current contractual obligations timely.
- For future investors, it acts as a tool to understand the organization more intimately and one can rely more on moving forward with the decision of making a move for investment.
- It gives reasonable assurance to the government that the company is not indulged in breaking any rules and is not involved in any malpractices which are prohibited by the law.
- It also means a reduction in audit fees as an auditor will spend a significantly low amount of time gathering information and evidence which means fewer work hours, therefore, meaningless fees.
Limitations of Unqualified Opinion
The limitations related to the unqualified opinion are as follows:
There is an audit risk that even after thorough checks of policies and procedures and collecting the evidence the opinion concluded by the auditor may turn out to be false due to falsification of information by the management or gross misinterpretation by the auditor of the information provided by the management which will eventually lead to wrong conclusions drawn by the users of the report hampering their decisions and expectations from such decisions.
Important Points Related to Unqualified Audit Opinion
The different important points related to the Unqualified Audit Opinion are as follows:
- The audit report of the company by its auditor with the unqualified opinion shows that the financial statements of an organization do not include any material discrepancies or misstatements and the same are true and correct to the best of the knowledge of the auditor of the company.
- It enhances the overall goodwill of the company which enables it to maintain a clean and positive image in the eyes of its current as well as prospective customers.
- The unqualified opinion gives reasonable assurance to the management, shareholders, creditors and lenders, investors and potential investors and to the government about the financial statements and the working of the organization.
- The opposite of the unqualified opinion is the qualified opinion, according to which as per the audit conducted by the auditor of the previous financial year’s financial statements of the company and the different controls and practices followed in the company, financial statements of the company does not present the true and the fair view of financial position of the company.
Conclusion
Unqualified opinion refers to the opinion given by the auditor of the company with respect to the company’s financial statement presenting that the financial statements of an organization are true and correct to the best of the knowledge of the auditor and does not include any material discrepancies or misstatements.
Unqualified opinion gives reasonable assurance to the management, shareholders, creditors and lenders, investors and potential investors and to the government about the financial statements and the working of the organization and enhances overall goodwill of the company which enables it to maintain a clean and positive image in the eyes of its current as well as prospective customers.
However, there is an audit risk that even after thorough checks of policies and procedures and collecting the evidence the opinion concluded by the auditor may turn out to be false due to falsification of information by the management or gross misinterpretation by the auditor of the information provided by the management which will eventually lead to wrong conclusions drawn by the users of the report hampering their decisions and expectations from such decisions.
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