Auditing financial statement is a type of assurance service, the final product is the “audit opinion” for the audited financial statements of enterprises. Based on the "audit opinion", users of financial statements tend to have more appropriate decisions with the financial and accounting information provided by enterprises.
Consequently, when reading the audited financial statements, we shouldn’t ignore the "audit opinion".
For more specific information, you might read some auditing standards such as: standard No. 700, 705, 706, 710, 720, 800, 805, 810, 1000, 930, 920.
BASIS OF FORMATION OF 4 TYPES OF AUDIT OPINION
The First - Unqualified opinion:
An unqualified opinion is formed when the auditor has fully obtained appropriate audit evidence to conclude that the financial statements give a true and fair view in all material respects.
The Second - Qualified opinion:
A qualified opinion is formed when the auditor concludes that the financial statements only give a true and fair view, in all material respects of the entity's financial position, if not affected by a contingent (or “except for”) factor, on which the auditor concluded in the audit report.
Two cases of Qualified opinion:
- No. 1: The auditors base on sufficient and appropriate audit evidence obtained, then they will conclude that misstatements, viewed individually or grossly, are material but not pervasive to the financial statements.
- No. 2: The auditors are not able to obtain sufficient appropriate audit evidence to form the audit opinion, but the auditors conclude that the possible effects of misstatement have not been detected (if any) may be material, but not pervasive to the financial statements.
The Third - “Disclaimer opinion”
“Disclaimer opinion” is formed when the auditor is unable to fully obtain appropriate audit evidence which are based to form the audit opinion, and the auditor concludes that the possible effects of undetected misstatements (if any) may be material and pervasive to the financial statements.
The Fourth - “Adverse Opinion”:
The “Adverse opinion” is formed when the auditor bases on sufficient and appropriate audit evidence obtained, then concludes that misstatements, viewed individually or grossly, are material and pervasive to the financial statements.
QUESTIONS ABOUT AUDIT OPINION WHEN READING FINANCIAL STATEMENTS
A frequently asked question from the readers of audited financial statements is “whether the audited financial statement with the unqualified opinion will be free from misstatement”, and the answer is:
An audit procedure is planned and performed in accordance with the provisions of auditing standards, the auditor still may not detect all errors or fraud. Therefore, the unqualified opinion does not mean that the audited financial statements are free of misstatements, "which may contain errors", but they are not material.
