An unqualified audit opinion is given when the financial statements present a true and fair view and comply with the legislation. In all other circumstances, a qualified opinion is given. A qualified opinion suggests that the information provided was limited in scope and/or does not comply with the accounting standards or legislation.
We first need to understand thae circumstances that can give rise to a qualified opinion. These circumstances can be:
The uncertainty can arise due to inability to obtain sufficient relevant information due to limitation of scope. The limitation upon scope of auditor can either be imposed by the management (such as not allowing access to information) or by other factors (such as destruction of accounting records).
There can be a disagreement between the auditors and the management arising from unsuitable accounting policies, factual discrepancies, inadequate or misleading disclosures, or failure to comply with legislation or accounting standards.
There can be three types of qualified opinions depending upon the circumstances.
1. "Except for" qualification
If the matter is material but not a fundamental uncertainty or disagreement, an ''except for'' opinion will be given. For example if some of the accounting record pertaining to a particular class of assets is destroyed resulting in limitation of scope or a disagreement about depreciation policy of a particular class of assets, an "except for" qualified opinion will be given. This opinion will indicate that the financial statements present a true and fair view ''except for'' that particular class of assets.
- Adverse Opinion
An adverse opinion is given when the uncertainty or disagreement is so pervasive that the financial statements do not present a true and fair view. For example if the company has failed to recognize a provision that would have significantly affected the profit or loss and the assets of the company, the auditor will give an adverse opinion indicating that the financial statements do not present a true and fair view.
- Disclaimer Opinion
In the event of fundamental uncertainty the auditor gives a disclaimer opinion. The auditor report will indicate that due to extreme limitations on the scope, the auditor was unable to form any opinion.