What is an Unqualified Opinion of auditors?
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
There is a company A ltd, which is manufacturing and selling the different products in the market. 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 auditPurpose Of Conducting The 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. 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 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. 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 present the true and fair view of the financial position of A ltd.
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
- For management, it is additional proof for their work done throughout the year. It 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 costs.
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. 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 users of the report hampering their decisions and expectations from such decisions.
Important Points Related to Unqualified Audit Opinion
- The audit report of the companyAudit Report Of The CompanyAn audit report is a document prepared by an external auditor at the end of the auditing process that consolidates all of his findings and observations about a company's financial statements. 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 is 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.
- It gives reasonable assurance to the management, shareholders, creditors and lenders, investors, and potential investors and the government about the financial statements and the working of the organization.
- The opposite of the unqualified opinion is the qualified opinionQualified OpinionThe company's auditor issues a qualified opinion in the audit report if it is found that the company's financial statements are presented fairly, but with exceptions in specific areas. It is one level below a Unqualified Opinion (i.e. Clean Opinion) and is given when the Auditor believes the financial statement has not been prepared in accordance with the rules laid down under the provisions of GAAP or IFRS., 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.
An unqualified opinion refers to the opinion given by the auditor of the company concerning 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 do not include any material discrepancies or misstatements.
It gives reasonable assurance to the management, shareholders, creditors, and lenders, investors and potential investors and the government about the financial statements and the working of the organization and enhances overall 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. 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.
This article has been a guide to unqualified opinion and its definition. Here we discuss an example of unqualified opinion along with advantages and limitations. You can learn more about investment from the following articles –