What is an Unqualified Opinion of auditors?

Example of Unqualified Opinion of Auditor

There is a company A ltd, manufacturing and selling the different products in the market. The company’s shares are listed on the stock exchange for the trading of the general public. The company appoints M/s B and Co.The primary purpose of an audit is to conduct an independent and unbiased verification of all financial and non-financial material information to ensure that it is in line with what the management has reported.read more to auditTo AuditThe primary purpose of an audit is to conduct an independent and unbiased verification of all financial and non-financial material information to ensure that it is in line with what the management has reported.read more the company’s previous financial year’s financial statements and the different controls and practices followed in the company. Auditor M/s B and Co conduct the company’s audit for the previous financial year. After conducting the audit concludes that no material discrepancies, misstatements, or errors are found in the financial statementsFinancial StatementsFinancial statements are written reports prepared by a company’s management to present the company’s financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more or the working of Company A Ltd.

So the auditor gives his complete report providing his unqualified opinion about the company’s previous financial year’s financial statements. And the different controls and practices followed in the company mention that, in their opinion, the company’s financial statements present the true and fair view of the financial position of A ltd.

This unqualified opinion enhances the overall goodwill of the company, which enables it to maintain a clean and positive image in the eyes of its current and prospective customers, shareholders, creditors and lenders, investors, potential investors, and the government.

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Advantages of Unqualified Opinion

  • It is additional proof of their work done throughout the year for management. It can showcase its competency leading to further enhancement of the procedures, innovation, and increase in remunerationRemunerationRemuneration refers to overall monetary and non-monetary compensation that employees or independent contractors receive for providing services to an organization or company.read more.For shareholders, it acts as an assurance that the work of the management is thoroughly checked, and the figures can be relied upon, enabling them to trust the management moving forward and re-establishing trust that their money is being utilized optimally.For creditors and lenders, a company’s creditworthinessCreditworthinessCreditworthiness is a measure of judging the loan repayment history of borrowers to ascertain their worth as a debtor who should be extended a future credit or not. For instance, a defaulter’s creditworthiness is not very promising, so the lenders may avoid such a debtor out of the fear of losing their money. Creditworthiness applies to people, sovereign states, securities, and other entities whereby the creditors will analyze your creditworthiness before getting a new loan.read more is increased if it has an unqualified opinion, leading to a better image for the company to raise debt if required with much more ease at cheaper rates in the future. It also shows that the company will fulfill its current contractual obligations timely.For future investors, it acts as a tool to understand the organization more intimately, and one can rely more on moving forward with the decision of making a move for investment.It gives reasonable assurance to the government that the company is not indulged in breaking any rules and is not involved in any malpractices prohibited by the law.It also means a reduction in audit fees as an auditor will spend significantly less time gathering information and evidence, which means fewer work hours; therefore, meaningless costs.

Limitations

There is an audit riskAudit RiskAudit Risk refers to the probability of erroneous financial statements going unnoticed by the auditors, i.e., they issue an unqualified opinion to even the materially misstated financial statements. read more that even after thorough checks of policies and procedures and collecting the evidence, the opinion concluded by the auditor may turn out to be false. It may happen due to false information by the management or gross misinterpretation by the auditor of the information provided by the management. It will eventually lead to wrong conclusions drawn by the report’s users, hampering their decisions and expectations from such decisions.

  • The audit report of the companyAudit Report Of The CompanyAn audit report is a document prepared by an external auditor at the end of the auditing process that consolidates all of his findings and observations about a company’s financial statements.read more by its auditor with the unqualified opinion shows that an organization’s financial statements do not include any material discrepancies or misstatements, and the same is true and correct to the best of the knowledge of the auditor of the company.It enhances the overall goodwill of the company, which enables it to maintain a clean and positive image in the eyes of its current and prospective customers.It gives reasonable assurance to the management, shareholders, creditors and lenders, investors, potential investors, and the government about the organization’s financial statements and working.The opposite of the unqualified opinion is the qualified opinionQualified OpinionThe company’s auditor issues a qualified opinion in the audit report if it is found that the company’s financial statements are presented fairly, but with exceptions in specific areas. It is one level below a Unqualified Opinion (i.e. Clean Opinion) and is given when the Auditor believes the financial statement has not been prepared in accordance with the rules laid down under the provisions of GAAP or IFRS.read more, according to which, as per the audit conducted by the auditor of the previous financial year’s financial statements of the company and the different controls and practices followed in the company, financial statements of the company does not present the true and the fair view of financial position of the company.

Conclusion

An unqualified opinion refers to the auditor’s opinion concerning the company’s financial statement presenting that the financial statements of an organization are true and correct to the best of the auditor’s knowledge and do not include any material discrepancies or misstatements.

It gives reasonable assurance to the management, shareholders, creditors, lenders, investors, potential investors, and the government about the organization’s financial statements and working. It enhances the company’s overallIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company’s net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company’s net identifiable assets from the total purchase price.read more goodwillGoodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company’s net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company’s net identifiable assets from the total purchase price.read more, which enables it to maintain a clean and positive image in the eyes of its current and prospective customers.

However, there is an audit risk that even after thorough checks of policies and procedures and collecting the evidence, the opinion concluded by the auditor may turn out to be false due to falsification of information by the management or gross misinterpretation by the auditor of the information provided by the management which will eventually lead to wrong conclusions drawn by the users of the report hampering their decisions and expectations from such decisions.

This article has been a guide to unqualified opinion and its definition. Here we discuss an example of an unqualified opinion along with its advantages and limitations. You can learn more about investment from the following articles –

  • Audit Committee DefinitionChart of Accounts ListStatutory AuditAudit Report Contents Format