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Unqualified Opinion of Auditor

Updated on March 29, 2024
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. to audit 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 statements 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

  • It is additional proof of their work done throughout the year for management. 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 a better image for the company to raise debt if required with much more ease at cheaper rates in the future. It also shows that the company will 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 prohibited by the law.
  • It also means a reduction in audit fees as an auditor will spend significantly less time gathering information and evidence, which means fewer work hours; therefore, meaningless costs.

Limitations

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. 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.

  • The audit report of the company by its auditor with the unqualified opinion shows that an organization’s financial statements 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 and prospective customers.
  • It gives reasonable assurance to the management, shareholders, creditors and lenders, investors, potential investors, and the government about the organization’s financial statements and working.
  • 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

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 overall goodwill, 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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