Accounting and Finance Foundations

Unit 13

Accounting and Finance Foundations Unit 13: Auditing 1005

Auditing

Chapter 30

Lesson 30.5 The Audit Process—Issuing the Audit Report (cont’d)

n    Qualified opinion

n    Although the financial statements generally followed GAAP, there were some exceptions.

n    If the auditor has a qualified opinion, s/he usually adds an explanatory paragraph after the

scope to explain the qualification.

n    Disclaimer of opinion

n    The auditor could not form an opinion on the financial statements.

n    The auditor could not complete the audit due to conflict of interest, scope limitations, doubt

about the company’s ability to continue operating, etc.

n    Adverse opinion

n    The financial statements do not adhere to GAAP and therefore do not present the company’s

financial situation fairly or accurately.

n    The financial statements are materially misstated, incorrect, unreliable, and inaccurate.

How does the auditor determine which opinion is most appropriate? S/He typically asks himself/herself the

following questions:

Were any

significant/material issues

discovered during the audit?

Did the company follow Gener-

ally Accepted Accounting

Principles (GAAP)?

Was the audit completed

in accordance with

Generally Accepted Auditing

Standards (GAAS)?

Unqualified

opinion

No. No significant/material

issues were discovered.

Yes. The company followed

GAAP at all times.

Yes. The audit was completed

in accordance with GAAS.

Qualified

opinion

Yes and no. Somewhat

significant/material issues

were discovered.

Yes and no. Although the

company followed GAAP most

of the time, there were minor

exceptions.

Yes and no. The auditor

was uncertain about a few

somewhat significant/mate-

rial issues and was unable to

gather sufficient evidence to

clarify the issues. Therefore,

the audit was not in complete

accordance with GAAS.

Adverse

opinion

Yes. Highly significant/material

issues were discovered.

No. The company did not follow

GAAP.

No. The auditor encountered

several highly significant/

material issues that s/he

could not clarify through

audit evidence. Therefore,

the audit was not in complete

accordance with GAAS.

Disclaimer of

opinion

If the auditor concludes—at any time—that s/he cannot complete the audit due to conflict of inter-

est, scope limitations, or doubt about the company’s going concern, s/he may withdraw from the

audit and issue no opinion.

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