The Auditor’s Report

During a financial statement audit, auditors are required to issue an opinion on the financial information presented to them by the Company’s management in what is called an ‘Auditor’s report,’ based on the outcome of the audit testing and fieldwork performed.

The main objective of this report is for the auditor to outline whether the accompanying financial statements being presented, faithfully represent the Company’s financial position in line with the applicable accounting standards. Financial statement users are particularly interested in the opinion issued since it reflects the integrity of the accounting information being presented to them and allows them to determine the level of trust they can place in such figures. To simplify matters, the auditing team at GCS Malta discuss the different types of audit opinions and reports in this article.

Types of Audit Opinions

The opinion issued within the Auditor’s report can take any one of the four following forms:

  1. Unqualified Opinion
  2. Qualified Opinion
  3. Adverse Opinion
  4. Disclaimer of Opinion

Unqualified Audit Opinion

The ‘Unqualified opinion’ is the most frequently issued opinion which is considered a clean one. This generally means that:

  • The financial statements have been prepared in line with a set of accounting principles; and
  • The financial statements are compliant with statutory rules, requirements and regulations.

However, it is important to note that having an ‘Unqualified opinion’ does not necessarily mean that:

  • The Company was issued a clean bill of health.
  • The auditor has reviewed every transaction of the Company before issuing the ‘Unqualified opinion.’
  • The auditor has specifically searched for the occurrence of fraud within the Company and did not find any.

Other Audit Opinions

As per ISA 700, if the auditor:

  1. Concludes that the financial information being presented by management is not free from material errors (referred to as ‘misstatements’)
  2. Is unable to obtain sufficient and appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatements,

then the auditor shall modify the opinion within the Auditor’s report in accordance with the applicable standard. In such instances, the auditor must also express the reasoning behind the issuance of such opinion within a specific paragraph in the Auditor’s report referred to as the ‘Basis for Opinion.’

Audit Opinion in cases where the financial information is not free from material errors

When the financial information presented to the auditor includes material errors, the auditor is required to issue a ‘Qualified opinion’ or an ‘Adverse opinion.’ This depends on the area which had identifiable material errors and the impact that the errors are expected to have on the financial information being presented as a whole. Such occurrence is referred to as pervasiveness, which is important for auditors to consider when deciding on the type of report to issue.

Furthermore, if the error is considered to be isolated to specific components of the financial statements, without any potential effects on other areas, issuing a ‘Qualified opinion’ is considered suitable.

On the other hand, if the error is deemed to be prevalent across several components of the financial statements being presented, then an ‘Adverse opinion’ may need to be issued.

Audit Opinion in cases where sufficient and appropriate audit evidence could not be obtained

 When the auditor cannot obtain sufficient and appropriate evidence throughout the audit, two types of opinions can be issued, the ‘Qualified opinion’ or a ‘Disclaimer of opinion.’

The former type of report may only be issued if the area in which the auditor could not obtain the required evidence is not deemed pervasive. Conversely, a disclaimer of opinion is issued when the auditor cannot obtain evidence for an area that is fundamental to the financial information presented, which precludes the auditor from expressing any opinion on such financial information.

Why GCS Malta?

 At GCS Malta, our team of professional auditors are experienced in internal and external auditing with a range of audit clients from family businesses to medium-sized companies. Contact us today for more information on how we can assist you.

Article by Shannon Muscat