Here are the four types of audit reports that are given by external auditors:
1. Unqualified Opinion
If your company gets this opinion, that’s a good thing. An unqualified opinion indicates that the information presented in a company’s financial report is clean. As in a medical patient’s clean bill of health, an unqualified opinion shows that the audited financial statements can be presumed to be free from misstatements.
2. Qualified Opinion
An opinion rendered in a qualified audit report is similar to an unqualified opinion; however, the auditing body cannot express an unqualified opinion for several reasons. One reason could be that the company did not present its financial records in accordance with GAAP.
3. Disclaimer Opinion
Auditors give a disclaimer when they are unable to express a definite opinion. This can be due to the lack of properly maintained financial records or the absence or insufficient support from the management. For instance, an auditor may not have had the opportunity to fulfill tasks that they deem to be crucial to the audit, such as observing operational procedures or reviewing particular procedures.
4. Adverse Opinion
When auditors issue an adverse opinion, it indicates that there has been a gross misstatement and, possibly, fraud, in the preparation of the company’s financial records. An adverse opinion shows that the company’s records have not been prepared in accordance with GAAP. Financial statements with adverse audit opinions are typically rejected by financial institutions or investors.