The primary objective of most audit assignments is for the auditor to express an opinion regarding the subject matter. Usually, they report it in a document known as the audit report. The term audit opinion defines a statement provided by auditors about a given subject matter. This opinion may differ based on the type of audit engagement, its scope, and auditors’ findings.
When it comes to external audits, auditors can only express an opinion in two forms. These include unmodified and modified audit opinions. However, the modified audit opinion has three other types. In total, there are four types of audit opinions that auditors may express in an external audit report. These opinions relate to a subject matter, which usually includes financial statements.
What are the types of Audit Opinions?
There are two primary classifications of audit opinions, including modified and unmodified audit opinions. Auditors express this opinion in a written statement in the audit report. An explanation of what each of these audit opinions is and what they mean is as below.
Unmodified Audit Opinion
An unmodified audit opinion is a standard audit opinion provided by auditors. Auditors use this opinion when the given subject matter matches the requirements of the suitable criteria. Similarly, unmodified audit opinions express auditors’ satisfaction in two regards. The first relates to auditors obtaining sufficient and appropriate audit evidence related to the subject matter. The second involves the subject matter meeting the suitable criteria.
The unmodified audit opinion, or unqualified audit opinion, usually provides a green signal to stakeholders. However, it does not imply that the given subject matter is free from all misstatements. Some immaterial misstatements may still exist. Unmodified audit opinions do not modify the audit report. However, they can still be a part of modified audit reports.
Modified Audit Opinion
Auditors may also express a modified audit opinion. Usually, this happens if the subject matter can’t fulfill the criteria for an unmodified audit opinion. A modified audit opinion also modifies the audit report. Usually, this opinion is a negative sign, implying the financial statements may have material misstatements. There are three types of modified audit opinions that auditors may express, as follows.
Qualified Audit Opinion
A qualified audit opinion is a type of modified opinion in which auditors express that the subject matter has material misstatements. Similarly, it may also relate to unavailable audit evidence. However, these material misstatements or unavailable pieces of evidence are not pervasive. The term pervasive relates to misstatements in the subject matter affecting users’ decision-making. Therefore, auditors will only specify the areas where these issues exist.
Adverse Audit Opinion
An adverse audit opinion also relates to the subject matter consisting of material misstatements. However, auditors only use this opinion when those misstatements are pervasive. In other words, auditors provide an adverse audit opinion when material misstatements in the subject matter affect users’ decisions. Usually, auditors express this opinion when the client is unwilling to rectify significant misstatements.
Disclaimer of Opinion
When auditors cannot obtain sufficient and appropriate audit evidence related to the subject matter, they will express a disclaimer of opinion. Usually, auditors use this opinion when the client is uncooperative or concealing evidence. However, the effect of any unavailable audit evidence must be pervasive for auditors to express a disclaimer of opinion.
Conclusion
An audit opinion is a statement expressed by auditors evaluating a subject matter against suitable criteria. There are two primary types of audit opinions that auditors may express. These include unmodified and modified audit opinions. The modified audit opinion has three types, including qualified opinion, adverse opinion, and disclaimer of opinion.
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