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Qualified Opinion report

Auditor’s report on financial statements

The most common auditor’s report in the world is an external auditor’s report on an auditee’s financial statements and its accompanying notes. This auditor's report is intended to advise investors, the government, and other users on whether the auditee's financial statements have been prepared in accordance with Generally Accepted Accounting Principles (GAAP), whether they are free of material misstatement (e.g. free of important and significant errors), and whether they show a true and fair view of the operating results, financial position and cash flows of the auditee.

Reports can take a wide variety of forms and contents but all of them have three things in common:

1. They are all addressed to the person or organisation that engaged accountants and auditors.

2. All the reports are signed with the name of the CPA firm and dated.

3. All the reports have a “ scope paragraph” and an “ opinion (conclusions) paragraph”. Some of the reports have other explanatory paragraphs in the middle.

It is important to note that the report is only an opinion on whether the information presented is correct and free of material misstatements, whereas all other determinations are left for the user to decide.

There are four common types of auditor’s reports.

Unqualified Opinion report

The most frequent type of report is referred to as the Unqualified Opinion. This type of report is issued by an auditor when the financial statements presented are free of material misstatements and are in accordance with GAAP, which in other words means that the company’s financial condition, position, and operations are fairly presented in the financial statements. It is the best type of report an auditee may receive from an external auditor.

The first paragraph (introductory paragraph) states the audit work performed and identifies the responsibilities of the auditor and the auditee in relation to the financial statements. The second paragraph (scope paragraph) details the scope of audit work, provides a general description of the nature of the work, examples of procedures performed, and any limitations the audit faced based on the nature of the work. This paragraph also states that the audit was performed in accordance with the country’s prevailing generally accepted auditing standards and regulations. The third paragraph (opinion paragraph) simply states the auditor’s opinion on the financial statements and whether they are in accordance with generally accepted accounting principles.

Qualified Opinion report

A Qualified Opinion report is issued when the auditor encountered one of two types of situations which do not comply with generally accepted accounting principles, however the rest of the financial statements are fairly presented. This type of opinion is very similar to an unqualified or “clean opinion”.The two types of situations which would cause an auditor to issue this opinion over the Unqualified opinion are:

· Single deviation from GAAP – this type of qualification occurs when one or more areas of the financial statements do not conform with GAAP (e.g. are misstated), but do not affect the rest of the financial statements from being fairly presented when taken as a whole.

· Limitation of scope - this type of qualification occurs when the auditor could not audit one or more areas of the financial statements, and although they could not be verified, the rest of the financial statements were audited and they conform GAAP.