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Audit opinions

An independent auditor’s report (or audit opinion) is a certification that accompanies financial statements. Auditors examine information that supports the financial statements to provide a formal auditor’s opinion. The independent auditor’s report is attached to the front of the organization’s financial statements to show whether the statements meet generally accepted accounting principles and that they have been scrutinized by an independent auditor.

Auditors have a professional responsibility to remain independent and to describe any circumstances where the financial statements contain significant errors or omissions.

The audit opinion generally includes:

  1. an introductory paragraph that identifies the financial statements audited
  2. a description of the responsibility of management for the proper preparation of the financial statements, and the financial reporting framework under which the financial statements were prepared
  3. a description of the auditor’s responsibility to express an opinion on the financial statements and the scope of the audit
  4. an opinion paragraph containing an expression of opinion on the financial statements and a reference to the applicable financial reporting framework used to prepare financial statements

There are two types of audit opinions:

  1. Unmodified opinion – or clean opinion – financial statements present fairly in all material respects, the financial position and results of the entity.
  2. Modified opinion – qualified opinion, adverse opinion, or disclaimer of opinion on the financial statements.
    • Qualified opinion – there are misstatements that are material, but not pervasive, to the financial statements. The reason for the qualified opinion is provided.
    • Adverse opinion – there are misstatements that are both material and pervasive to the financial statements. The reason for the adverse opinion is provided.
    • Disclaimer of opinion – the auditor general is unable to obtain sufficient appropriate audit evidence on which to base an opinion, and possible effects could be both material and pervasive.

Auditors may include an emphasis of matter paragraph to draw attention to something so the reader can better understand the financial statements. Examples of when an emphasis of matter may be included is when there is:

  • uncertainty of the future outcome of exceptional litigation or regulatory action;
  • early application of a new accounting standard that has an effect on the financial statements in advance of its effective date;
  • a difference between the basis of accounting (financial reporting framework) used in the preparation of the financial statements and what would be considered the generally accepted accounting framework; or
  • a major catastrophe that has a significant effect on the entity’s financial position.