Unqualified Opinion of Auditor

Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

What is an Unqualified Opinion of auditors?

An 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 are in place and collected optimum evidence to justify his findings after maintaining the audit file and analyzing 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.

Key Takeaways

  • An unqualified opinion of an auditor refers to the idea that the financial statements of an entity are projected reasonably, as per the applicable accounting framework, and that the auditor has no reservations about the accuracy of the reports.
  • It ensures the management, shareholders, creditors, lenders, investors, and the government about the organization’s financial statements and working, improves the company’s goodwill to manage a positive image in the current and customer’s view.
  • There is an audit risk after specific policies and procedure checks and gathering proof. The auditor’s opinion may be untrue due to management’s incorrect information or misinterpretation by management.

Example of Unqualified Opinion of Auditor

There is a company A ltd, manufacturing and selling the different products in the market. The company’s shares are listed on the stock exchange for the trading of the general public. The company appoints M/s B and Co.The primary purpose of an audit is to conduct an independent and unbiased verification of all financial and non-financial material information to ensure that it is in line with what the management has reported.read more to auditTo AuditThe primary purpose of an audit is to conduct an independent and unbiased verification of all financial and non-financial material information to ensure that it is in line with what the management has reported.read more the company’s previous financial year’s financial statements and the different controls and practices followed in the company. Auditor M/s B and Co conduct the company’s audit for the previous financial year. After conducting the audit concludes that no material discrepancies, misstatements, or errors are found in the financial statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more or the working of Company A Ltd.

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So the auditor gives his complete report providing his unqualified opinion about the company’s previous financial year’s financial statements. And the different controls and practices followed in the company mention that, in their opinion, the company’s financial statements present the true and fair view of the financial position of A ltd.

This unqualified opinion enhances the overall goodwill of the company, which enables it to maintain a clean and positive image in the eyes of its current and prospective customers, shareholders, creditors and lenders, investors, potential investors, and the government.

Unqualified Opinion of Auditor

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If you want to learn more about Auditing, you may consider taking courses offered by Coursera

  1. Auditing I: Conceptual Foundations of Auditing
  2. Auditing II: The Practice of Auditing

Advantages of Unqualified Opinion

Limitations

There is an audit riskAudit RiskAudit Risk refers to the probability of erroneous financial statements going unnoticed by the auditors, i.e., they issue an unqualified opinion to even the materially misstated financial statements. read more 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. It may happen due to false information by the management or gross misinterpretation by the auditor of the information provided by the management. It will eventually lead to wrong conclusions drawn by the report’s users, hampering their decisions and expectations from such decisions.

Conclusion

An unqualified opinion refers to the auditor’s opinion concerning the company’s financial statement presenting that the financial statements of an organization are true and correct to the best of the auditor’s knowledge and do not include any material discrepancies or misstatements.

It gives reasonable assurance to the management, shareholders, creditors, lenders, investors, potential investors, and the government about the organization’s financial statements and working. It enhances the company’s overallIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company's net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company's net identifiable assets from the total purchase price.read more goodwillGoodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company's net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company's net identifiable assets from the total purchase price.read more, which enables it to maintain a clean and positive image in the eyes of its current and 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.

Frequently Asked Questions (FAQs)

What is the difference between the unmodified and unqualified opinion of the auditor?

Issuers or public companies may obtain unqualified audit opinions. At the same time, non-issuers or private companies may receive unmodified ideas. Therefore, the audit report criterion may differ between the two audit opinion types.

What are the consequences of an unqualified opinion of an auditor?

The consequences of an unqualified opinion of an auditor can be positive for the entity being audited. Moreover, these opinion does not guarantee that an entity’s financial statements are free from error or misstatement.

Why do some unqualified opinions of auditors have explanatory paragraphs?

The unqualified opinions have explanatory paragraphs since it shows essential points to address. Moreover, it also displays any inconsistent accounting principles and standards the organization applies.

This article has been a guide to unqualified opinion and its definition. Here we discuss an example of an unqualified opinion along with its advantages and limitations. You can learn more about investment from the following articles –

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