What is an Auditor’s Opinion?

An auditor’s opinion is a formal statement made by an auditor concerning a client’s financial statements. It is derived from the audit procedures conducted by the auditor on the client’s financial records and processes; the result of this work is an opinion regarding the fairness of presentation of the financial statements. The client attaches a favorable opinion to its financial statements when presenting them to third parties. A lesser opinion might result in the financial statements not being issued at all. There are several types of audit opinions, which are noted below:

Unqualified opinion. The unqualified opinion states that the financial statements fairly reflect the client’s financial results and financial position. This is the gold standard opinion that clients seek, since it provides a seal of approval to the client’s financial statements, making it easier to raise money from lenders and investors. Clients are usually willing to make any adjusting entries requested by the auditor in order to ensure that an unqualified opinion is issued.
Qualified opinion. The qualified opinion indicates any limitations on the scope of the audit and may describe certain information that could not be verified. In essence, this opinion is pointing out an area of uncertainty within a client’s financial statements.
Adverse opinion. The adverse opinion indicates significant problems with the client’s financial statements. A client may elect not to issue its financial statements at all when this type of opinion is issued. This opinion can be a major problem for an indebted business, since its lenders may have mandated that an unqualified opinion must be issued, or else they are entitled to call their loans with the organization.
Disclaimer. Another possible outcome is the disclaimer, where the auditor states that no opinion can be given regarding the financial statements due to such factors as the absence of financial records or a lack of cooperation by the client’s management team.