A clean opinion can be defined as an unqualified independent auditor’s report, a clean report, issue for the organization’s financial statements.
This kind of report confirms that the company’s financial statements do not have any matter that comes from error or fraud.
The financial statements are free from material misstatement or it is clean. When an auditor doesn’t believe this is the case, some opinions can be issued, such as a qualified opinion, adverse opinion, or disclaimer of opinion.
Communities of Investments and lenders are only willing to invest their funds into a business that has been issued a clean opinion.
What Is a Clean Opinion?
A very good example of a Clean opinion is:
A typical audit report of a clean opinion letter may state that “from our view, the financial statements give a true and equal view of the Financial state of the ABC company.”
A free author’s judgment about an organization’s financial statements is shown appropriately, equally concerning GAAP Generally Accepted Accounting Principles, and it is called a clean opinion. The most common type of auditor’s report is a clean opinion.
So usually, when an auditor understands that an organization’s financial statements are excellent and free from misstatements and errors.
So, In this case, only a clean opinion can be issued.
A clean opinion is very different from a qualified opinion, which can only be issued when an auditor finds something in the organization’s financial statements that’s of big concern.
The first paragraph is referred to as the introductory paragraph, showing the work of the audit performed. And also, the roles of the auditor are established concerning the financial statements.
The second paragraph is also known as the scope paragraph. It gives a detailed description of the work and the restrictions that the auditor might pass through because of the nature of the auditor audit.
The third paragraph, also known as the opinion paragraph, presents the auditor’s opinion on the Financial Statements and if the auditor followed the accounting principles.
The role of an auditor is to show the amount of accuracy and how reliable they have checked a financial statement.
Clean or Unqualified Opinion vs. Other Opinions
A clean opinion is utilized to access similarities and differences to a qualified opinion. The auditor has ascertained that there is a material issue related to accounting policies – but one that does not falsely represent the original financial position.
Auditors typically make eligible reports with several statements, e.g., “except for the following adjustments,” when they have insufficient information to verify certain aspects of the audited transactions and reports.
Qualified Opinions can sometimes be issued if the Financial statements divert from GAAP or have inadequate disclosure. If truly the Financial statements are not represented well, the auditor will report an adverse opinion or a disclaimer of opinion.
There are four main opinions an auditor can show in terms of his value showing of Financial statements, and these include:
1. Unqualified(Clean) opinions
2. Qualified Opinions
3. DISCLAIMER GROUPS
4. Adverse Opinions
If an auditor issued a clean opinion, he declared that he had performed a careful review of the organization’s financial reports and the necessary process to conclude that the Financial report that is processed reflects the most excellent of his judgment organization’s present Financial Situation.
Auditors use the standard Financial guidelines to check if the accounting procedures being used are equal is the Generally Accepted Accounting Principles (GAAP).
An auditor’s compliances with these principles are very important for him to express a clean opinion.
What does it mean generally?
The meaning of a clean opinion generally is as follows:
- There is enough disclosure of all materials that are useful for its appropriate presentation of the Financial facts.
- An organization’s financial statements have been prepared to use the Generally Accepted Accounting Principles, which are applied simultaneously.
- The organization’s financial statements correlate with the statutory rules, requirements, and regulations.
- In cases of changes in the accounting principles, or when there is a need for application, In this case, it has to be appropriately revised and determined in the financial statements of the organization.
The financial reports by the auditor usually contain a title, a header, the body of the report, and the signature, and the address of the auditor in charge.
And also the date the report was issued. The US auditing standards state that the title should include ‘independent’ to pass the user that the report was fully unbiased in every aspect.
It consists of three main paragraphs, which constitute the body of the clean report. And each paragraph has standard wording and its purposes.
Moreover, some auditors have made changes to the body of some reports but not the wording to differentiate themselves from other audit firms.
Clean Opinion Audit
A clean Opinion can also be known as an unqualified opinion. In this situation, the auditor reports a Clean Opinion if the financial statements are free from material misstatement.
Additionally, if the management has claimed responsibility for the establishment and the maintenance, a clean opinion can be given over the internal controls of the organizational entity.
And the auditor needs to perform detailed fieldwork to test its accuracy and effectiveness.
A firm’s auditor’s opinions about its Financial statements are fairly presented with the GAAP (Generally Accepted Accounting Principles).
A clean opinion does not majorly mean that a participant firm is strong Financially or that it has a good and bright future because weak firms nowadays receive clean opinions, which is also called the standard opinion, clean opinion.
The auditor has concluded that the financial statements show equally distributed results of company operations and the Financial position according to the GAAP.