Unqualified opinion: Definition, Explanation, Example, and Advantages (Importance)


An unqualified opinion is an opinion that is given by auditors after their testing on the audited financial statements that contain no material misstatement and those statements are prepared and present by following all the applicable financial reporting frameworks or standards and complying with the applicable regulation.

The opinion statement is normally attached to the audit report issued by auditors to the entity after they completed their testing and satisfied with the results along with the director report as well as the audited financial statements. The director report is also called the board of directors report.

This also means that auditors have obtained all necessary audit evidence that they need to support their opinion.

In case auditors found there is a material misstatement in the financial statements and that misstatement is not pervasive to other areas, then auditors might issue a qualified opinion.

This means that all other areas in the financial statements are ok except the areas that mention.


An entity might require by law to have its financial statements audited by an independent firm and then submit the audited report to relevance government organization annually.

Or it is sometimes part of their risk management that entity is voluntarily requested auditors to review its financial statements.

An entity might require by shareholders, the board of directors, or owners to have the entity’s financial statements audited annually.

The auditing period is normally annually but sometimes it is quarterly as per management or regulation’s requirement.

The auditor is not responsible for preparing the financial statements for the entity.

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But they are responsible for reviewing the entity’s financial statements that prepare by management with supporting documents and then voice their opinion objectively.

Those supporting documents including purchase invoices, sales invoices, contracts, assets’ recordings, sales recordings, purchase recordings, and other supporting documents that support financial transactions and events in the financial statements for the audit period.

Once audit comfort that after testing, they strongly believe that the financial statements contain no material misstatements from whatever cause, then auditors should issue the unqualified audit opinion.

Auditor and management’s responsibilities:

Once auditors completed their review, they are responsible for issuing audit opinions based on the result of their testing. Auditors should issue opinions objectively and no biased to any party.

Management of entity is responsible for preparing the financial statements in accordance with the accounting standards and complying with relevance law.

They are responsible for making sure that there is no material misstatement that may be caused by error or fraud in the financial statements.

To ensure that there are no risks of material misstatements that cause by error or fraud, management should set up strong internal control over financial reporting and equip with enough human resources.

Management is also responsible for providing all related supporting documents and records that support the financial transactions or event in the financial statements which are requested by auditors.

And also support auditors to perform their job during their audit engagement.

During the audit, based on auditing standards, auditors have to assess risks of misstatements that might be happened or happening because of fraud. However, auditors do not have primary responsibilities in detecting and investigating fraud.

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Management is responsible for making sure that risks of fraud are minimizing and they also have the primary responsibility in investigating and detecting fraud that might be happened or happening in the entity.

Unqualified opinion Vs Other opinions:

In terms of quality of financial information in the audited financial statements, the statements that received unqualified reports explicitly show or prove that they are accurate or correct based on fact than those received qualified, disclaimer or adverse opinions.

For the statements that received qualified opinion, it is proved that some information that disclosed or presents in the financial statements could not rely on or could not be trusted.

For the statements that received a disclaimer opinion, it is proved to the users that auditors could not say something about the financial statements since they could not test the transactions or events.

Or the testing is not completed to let them express or form the opinion about whether financial statements are prepared and presented fairly and truly or not.

And it is cleared that financial information might or might not be correct. Using of such financial statements is at users’ risks.

Engagement letter:

Before performing an audit on financial statements, both auditors and management should agree on the key engagement terms and conditions first.

Those include auditor’s responsibilities, management’s responsibilities, professional fee, scope, objective, and usages of audit reports. The engagement letter should be formed and signed by both parties’ representatives.

Importance of unqualified audit opinion:

There are many benefits that the entity could get from when they receive the unqualified opinion for their financial statements. For example,

  • Improve shareholder’s or owners’ points of view over management’s’ integrity. Because the opinion expresses that financial information is the true and fair view and it is implying that the management team who leads the entity has high integrity to their boss.
  • Improve the entity’s credit from customers, suppliers, and creditors. If the audit report could be accessed by external partners like customers, suppliers as well as creditors, then the trust those parties have for the entity remain the same or even increasing. Especially, when they saw the opinion is cleaned.
  • Improve administrative processing with the government’s agency. Some government agencies like tax departments might require the entity to submit an annual audit report to them. And if the financial statements receive unqualified opinion, then they probably received tax exemptions.
  • Reduce audit fee, maybe right? If the current year’s financial statements receive unqualified opinion, then it could mean that the entity’s current internal control over financial statements is strong and the future auditors might reduce the fee.
  • Reduce finance costs: Banks or the related financial institution might audit reports and financial statements to assess the entity’s credit score so that they could decide whether to provide the loan or not and what is the rate they should charge. And unqualified audit report could help the entity to increase the score.
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