Types of Audit Opinion

At the end of a statutory audit, the Auditor issues an audit report containing the Auditors
views on the financial statements of the company. Since an audit is an engagement for
verification of the books of accounts of an entity, the audit report is summarised in the audit
opinion. The verification of the book of accounts and other relevant facts, help the auditor form
an opinion and is the basis of the opinion expressed. In this article, we look at the four major
types of audit opinions that can be expressed by an Auditor in India. The different types of
audit opinion are based on the international practises followed by the accounting communities
around the world.

Unqualified Opinion or Unmodified Opinion

An unqualified opinion is expressed by the Auditor when he/she concludes that the financial
statements supply a true and fair view of the company’s financial standing in accordance with
the financial reporting framework deployed in the preparation and presentation of the financial
statements. Further, an unqualified opinion also indicates that:

 All accounting principles have been adopted properly, and the financial statement has
been prepared using the generally accepted accounting principles;
 The financial statements comply with relevant legal regulations and requirements;
 There is adequate disclosure of all material matters relevant to the proper presentation
of the financial information.

Qualified Opinion or Modified Opinion

An audit report is said to be a qualified report or a modified report if the Auditors report is
modified to add emphasis or highlight a matter affecting the financial statements. One of the
main reason for qualifying an audit report or modifying an audit report is if there are concerns
to the auditor regarding a going concern problem and the going concern question is not
resolved, and relevant disclosures have not been made in the financial statements. Example of
a modified report includes a phrase such as the following in the audit report:

“Without qualifying our opinion, we draw attention to Note II of the Schedule

to the financial statements. The entity is defendant in a lawsuit alleging
patent infringement. The ultimate outcome of the matter cannot presently
be determined, and no provision for any liability that may result has been
made in the financial statements.

Disclaimer of Opinion
If there is a limitation on the scope of the auditor’s work or if there is a disagreement with
management regarding the usability of the accounting policies selected, the method of their
utilisation or the adequacy of financial statement disclosure, then an adverse or disclaimer of
opinion is issued. Whenever an auditor issues an audit opinion that is qualified or adverse or a
disclaimer of opinion, a clear description of all the reasons is included in the audit report. A
disclaimer of opinion is expressed by an Auditor when the possible effect of limitation on the
scope of the audit is so material and pervasive that the auditor has not been able to obtain
sufficient appropriate audit evidence.

Adverse Opinion
An adverse opinion is expressed when the possible effect of a disagreement with management
is material and pervasive to the financial statements. Hence, the auditor concludes that the
qualification of the audit report is not adequate to disclose the misleading nature of the
financial statements. In case an adverse opinion is issued, the board of directors of the
company are legally bound to submit an explanation to the members of the company. The
explanation should inform the members the reason for the adverse opinion.