The standard auditor’s opinion contains three parts and states that:

1. Whereas the financial statements are prepared by management and are its
responsibility, the auditor has performed an independent review.
2. Generally accepted auditing standards were followed, thus providing
reasonable assurance that the financial statements contain no material errors.
3. The auditor is satisfied that the statements were prepared in accordance with
accepted accounting principles, and that the principles chosen and estimates made
are reasonable.
The auditor’s report must also contain additional explanation when accounting
methods have not been used consistently between periods.

An unqualified opinion indicates that the auditor believes the statements are free from material
omissions and errors.
Qualified opinion If the statements make any exceptions to the accounting principles, the auditor
may issue a qualified opinion and explain these exceptions in the audit report.
Adverse opinion
The auditor can issue an adverse opinion if the statements are not presented fairly or are
materially nonconforming with accounting standards.
The auditor’s opinion will also contain an explanatory paragraph when a material loss is
probable but the amount cannot be reasonably estimated. These “uncertainties” may relate to the
going concern assumption (the assumption that the firm will continue to operate for the
foreseeable future), the valuation or realization of asset values, or to litigation. This type of
disclosure may be a signal of serious problems and may call for close examination by the
analyst.
Under Generally Accepted Accounting Principles (GAAP), the auditor must state internal
controls are the responsibility of the firm’s management. Under the Sarbanes- Oxley Act, its
opinion on the company’s internal controls, which are the processes by which the company
ensures that it presents accurate financial statements. The auditor can provide this opinion
separately or as the fourth element of the standard auditor’s opinion.
Management is required to provide a report on the company’s internal control system that
includes the following elements:
• A statement that the firm’s management is responsible for implementing and
maintaining effective internal controls.
• A description of how management evaluates the internal control system.
• An assessment by management of the effectiveness over the most recent year of
the firm’s internal controls.
• A statement that the firm’s auditors have assessed management’s report on
internal controls.
• A statement certifying that the firm’s financial statements are presented fairly.

Auditor’s Opinion
An auditor conducts an independent examination of the accounting information presented by the
business and issues a report thereon. An auditor’s report is the formal statement of the auditor’s
opinion of the financial statements after conducting an audit.

Audit opinions are classified as follows:

1. Unqualified opinion. This opinion states that the financial statements present fairly, in all
material respects, the financial position, results of operations, and cash flows of the entity, in
conformity with generally accepted accounting principles.
2. Qualified opinion. A qualified opinion states that, except for the effects of the matter(s) to
which the qualification relates, the financial statements present fairly, in all material respects, the
financial position, results of operations, and cash flows of the entity, in conformity with
generally accepted accounting principles.

3. Adverse opinion. This opinion states that the financial statements do not present fairly the
financial position, results of operations, and cash flows of the entity, in conformity with
generally accepted accounting principles.

4. Disclaimer of opinion. A disclaimer of opinion states that the auditor does not express an
opinion on the financial statements. A disclaimer of opinion is rendered when the auditor has not
performed an audit sufficient in scope to form an opinion.