What is a Qualified Opinion?

A qualified opinion is a written statement by a certified public accountant in an audit report, stating that the financial statements of a client are fairly presented, except for a specified issue. The issue typically relates to a limitation on the scope of the audit, so that the auditor was unable to obtain sufficient evidence to verify various aspects of the transactions and reports being audited. Qualified opinions may also be issued if there is a lack of conformity with GAAP, inadequate disclosure, uncertainties in estimates, or the statement of cash flows has been omitted.

The qualified opinion is listed in the third position in the audit report, after a statement of management’s responsibilities for preparing the financial statements and maintaining a system of internal controls, and a description of the auditor’s responsibilities.

In essence, an organization that is being audited tries to avoid a qualified opinion, since it casts doubt on the financial statements of the entity.

Example Qualified Opinion

Here is an example of the basis for a qualified opinion, which auditors might insert into their audit report:

The Company has stated inventories at cost in the accompanying balance sheets. Accounting principles generally accepted in the Unites States of America require inventories to be stated at the lower of cost or market. If the Company stated inventories at the lower of cost or market, a write down of $810,000 would have been required as of December 31, 20X1. Accordingly, the cost of sales would have been increased by $810,000, and net income, income taxes, and stockholders’ equity would have been reduced by $810,000, $170,000, and $640,000 as of and for the year ended December 31, 20X1.