The audit opinion issued when the auditors are taking exception to a specific treatment of accounting information is the:
A. qualified opinion. B. disclaimer of opinion. C. adverse opinion. D. unqualified opinion.
The correct answer and explanation is:
The correct answer is A. qualified opinion.
A qualified audit opinion is issued when auditors identify a specific issue with a company’s financial statements, such as a particular treatment or accounting practice that does not fully comply with accounting standards. However, the issue is not pervasive enough to impact the overall fairness of the financial statements. The auditor will express that, except for the identified issue, the financial statements are presented fairly and in accordance with the relevant accounting standards.
This type of opinion is different from an adverse opinion, where the auditor believes the financial statements are materially misstated and do not accurately reflect the company’s financial position. A disclaimer of opinion is issued when the auditor is unable to obtain sufficient audit evidence to form an opinion, often due to limitations imposed by the company or other factors. An unqualified opinion, also known as a “clean opinion,” is the best possible outcome and indicates that the financial statements are free of material misstatements, presenting a true and fair view in accordance with accounting standards.
A qualified opinion typically results when there is a disagreement about accounting principles or the application of accounting policies, or when there are limitations on the scope of the audit. For example, if a company uses a different method for valuing inventory than generally accepted accounting principles (GAAP) allow, the auditor may issue a qualified opinion, indicating the financial statements are fairly presented except for that specific issue.
In summary, a qualified opinion addresses specific exceptions to accounting treatments while still allowing the overall financial statements to be seen as reliable with the exception of that particular issue.