During the course of the audit process, it can be seen that there are a number of different things that need to be accounted for, predominantly on the grounds of ensuring that the auditor is able to gather substantial evidence that can help him make a solid decision based on facts and figures. Therefore, in the case where the company has reported misstatements on the financial statements prepared and filed at the year-end, the auditor might end up declaring so in the audit opinion issued after the audit.
In this regard, companies often have to go to lengths in order to ensure that a qualified opinion, disclaimer, or adverse opinion is not issued that might result in a qualified statement at the year-end. Therefore, they try to make sure that they are able to do something that does not taint a reputation for their relevant stakeholders.
Opinion shopping can be regarded as a situation where the company consults or takes on board another auditor in order to obtain advice regarding the company’s financial statements. This is mainly done in cases where they have strained relationships with the current auditor.
This might be a result of disagreement on some financial matters, because of which the previous auditor is likely to issue a qualified opinion. Therefore, Opinion Shopping can be defined as an instance where the company tends to rely on outside or third-party auditors in order to obtain a favorable statement that will not hamper their operations.
The main reason companies opt for Opinion Shopping is that it basically vests to cover up their inefficiencies and their disabilities when it comes to financial audits. Given the fact that a Qualified Opinion is likely to hamper their business dealings and operations with all stakeholders, they try to ensure that auditors do not give a qualified opinion. In order to prolong their failure, they try to hire an independent auditor so that he is able to cover up and issue an Unqualified Opinion.
There can be a number of ways to find out if a company is Opinion Shopping. This is mainly done in cases where the company suddenly changes the auditor. When the company extends the Audit contract to someone else, it gets apparent that there is an issue, because of which they had to change the audit.
Otherwise, companies are unlikely to switch auditors without any apparent reason. In the same manner, if the current auditor suddenly resigns from a given job, that too is a red flag because unless there is a high-risk profile or some high-level disagreement, the auditor is unlikely to resign from the job itself.
Issues with Opinion Shopping
Opinion Shopping is regarded as an unfair and unethical auditing practice because of the fact that it absorbs transparency from the system. It highly compromises the objectivity of auditors because of the fact that it shows that some of the auditors are ready to compromise on their integrity in pursuit of searching for new clients.
Therefore, in this regard, it becomes highly important to note the fact that opinion shopping is a highly dubious practice, which undermines the audit profession because it raises some serious questions about the credibility of the auditor, who has just replaced the new auditor.
In the same manner, it can also be noted that Opinion Shopping results in other stakeholders being misled about the accuracy of the financial statements since they have been clarified without proper proof that this issue would be fixed. Therefore, this results in several different issues, specifically pertaining to the creation of an unwanted trust deficit between the company and the investors.
Therefore, it can be seen that Opinion Shopping can be regarded as a highly unethical practice, hampers the accounting cycle’s overall equilibrium. This is primarily because of the reason that it leads to stakeholders being misinformed about the underlying issues at hand, as a result of which might not end up making the right decision.
In the same manner, it also results in the audit firm losing face and credibility, because ultimately, if the company defaults, or if the shortcomings are pointed out later on during the financial year, people will eventually find out that it was an incident of Opinion Shopping. This would result in significant damage to the company and the Audit Firm because of their inability to point out inherent issues within the company’s financial statements.