Definition:

The audit opinion is the statement that expresses by independent auditors to their client’s financial statements as the result of auditors’ examination.

The audit opinion is very important for stakeholders because it let them know whether or not the information in the financial statements that they are using is correct and they can use that information for their decision making.

The audit opinion also indirectly informs the users of financial statements how is the integrity of senior management as well as the directors of the entity.

If auditors follow the international standard, then the ISA that use as the principle to form audit opinion is ISA 700 and ISA 705.

ISA 700 is used to form unmodified audit opinion and ISA 705 is the guidance that should use by the auditor to issue a modified opinion.

As required by the standard, auditors will have to issue the opinion on the client’s financial statements whether those financial statements, after audited, are prepared in all material respected and compliance with the framework that they used or not.

And if the financial statements meet all of these things, then unmodified opinion shall be issued.

Yet, if the financial statements have some problem, auditors need to use ISA 705 to form their opinion based on those problems.

Audit Opinion Flow Chart

In general, there are two main types of audit opinions: Unmodified and Modified Opinion.

An unmodified opinion, auditors issues this opinion to financial statements that prepared in all material respect and comply with accounting standards being used as well as applicable regulation.

However, for modified opinion, there are three sub opinions that are issued to financial statements that are not prepared in a material respect with others matter. We will discuss later.

Those three modified opinions are qualified, adverse and disclaimer opinions.

So, in total, there are four types of audit opinion right?

Unmodified(unqualified), qualified, adverse and disclaimer opinion.

Let see the Audit Opinion Flow Chart below to gain a better understanding:

See audit Approach here: Audit Approach

Now let check what are those four audit opinions and what they are issued for.

Type of audit’s opinions:

Here is the list of four types of audit opinion,

Unmodified Opinion:

As mentioned above, unmodified opinion is expressed to the financial statements that prepared in all material respect and complying with the applicable framework.

This opinion is issued once auditors obtain sufficient and appropriate audit evidence to the financial statements as the result of their testing.

Please note that the auditor is not providing absolute assurance on the financial statements that is why it uses words “in all material respect”.

All material respect here means there is no material misstatement in the financial statements, but there might be an immaterial misstatement.

It is okay to have immaterial misstatement in the financial statements as it is not lead users of FS to make the wrong decision. To form an unmodified opinion, ISA 700 is the reference to follow.

Now let move to others’ three opinions of modified opinion.

Qualified Opinion:

Qualifies opinion is the type of modified audit opinion where auditors make a conclusion after their testing that there is material misstatement found in the financial statements; however, those misstatements are not pervasive. Pervasive here is a bit subjective as it is based on auditor’s judgment.

But, as said in standard, misstatement is pervasive to financial statements if those misstatements are not effecting the financial statements and users’ decision making. The auditor may issue a qualified opinion on the opening balance of financial statements of the previous year’s financial statements that were not audited by them.

In terms of seriousness, the qualified audit opinion is serious than unqualified, yet it is better than adverse and disclaimers. We will talk about disclaimers and adverse opinions later in this article.

Adverse Opinion:

The adverse opinion is issued to the financial statements where auditors examined and concluded that those financial statements are materially misstated and pervasive. Compared to qualified opinion, adverse opinion is more serious than.

This opinion is the message to users of financial statements that they should not rely on these financial statements in their decision making.

This opinion is a bit different from a qualified opinion. For a qualified opinion, the auditor found material misstatement in the financial statements, but those misstatements are not pervasive.

Yet, in Adverse opinion, misstatements are both material and pervasive.

Disclaimer of Opinion:

Disclaimer of opinion, by the way, is different from both qualified and adverse. The auditor issued the disclaimer of opinion where they could not obtain and unable to access the audit evidence for individual items or in aggregation in the to support their testing.

Auditor believes that for those items that they are not able to access and obtain information could be materially misstated and pervasive.

This is happening after the auditor tries their best to negotiate with the client to obtain all of that important information and the client still rejects no matter it is the intention or unintentional.

What audit standards do auditors use as the basis to express their opinion?

It is depending on the country where the auditor firm is operating in. Auditors will perform their work based on the audit standards that allowed by the local authority who control the audit firms.

However, auditors should also make sure that those practices are not so far from the international standard on auditing.

For example, if your firm is operating in Thailand, that means your firm needs to follow Thailand’s audit standards. However, in practice, maybe there are some local standards which are not totally agreed to ISA.

In this case, auditors need to check with the international audit standard what it is required the auditor to do on that point.

For ISA, ISA 700 and ISA 705 is the standard that guide auditor on how to deal with modified and unmodified audit opinion.

Where can we find audit opinion in the audit report?

The audit opinion is stated in the audit report in the opinion section. Normally, in the audit report, there is significant importance information that we could find.

For example, the entity’s background, list of four financial statements and they are noted, a list of all significant accounting policies, opinion sections including basics of opinion and opinion, and Others matters.

In the audit report, we also could find auditor roles and responsibilities on financial statements, and managements’ roles and responsibilities to financial statements.

This is to ensure that the users who use the audit report could clearly understand that there is no conflict of interest between auditors and management’s roles in the preparation of financial statements.

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Written by Sinra