The audit opinion is the core of the independent auditor's report. Yet many business owners and organization managers do not fully understand the differences between the types of opinion and their implications. This article explains them concisely.
What Is an Audit Opinion
An audit opinion is a Public Accountant's statement on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. It is based on the Standards on Auditing (SA) issued by IAPI, particularly SA 700 on forming an opinion, SA 705 on modifications to the opinion, and SA 706 on Emphasis of Matter and Other Matter paragraphs.
An opinion is not a guarantee that a company is free from fraud, nor is it an assessment of business performance. It provides reasonable assurance that the financial statements are free from material misstatement.
Four Types of Opinion
- Unmodified Opinion (WTP). The financial statements are presented fairly in all material respects. This is the expected opinion.
- Qualified Opinion (WDP). There is a material misstatement, or the auditor was unable to obtain sufficient evidence, but the effect is not pervasive or is limited to specific accounts.
- Adverse Opinion (TW). Material misstatements with pervasive effects, so the financial statements as a whole cannot be relied upon.
- Disclaimer of Opinion (TMP). The auditor is unable to obtain sufficient appropriate evidence, and the possible effects are pervasive.
BPK uses similar terms in its audits of government financial statements: WTP, WDP, TW, and TMP.
Emphasis of Matter and Going Concern
The auditor's report may include an Emphasis of Matter paragraph to draw readers' attention to a matter already disclosed in the financial statements, such as events after the reporting date or litigation uncertainty. This paragraph does not modify the opinion.
Where there is a material uncertainty about the entity's ability to continue as a going concern that has been adequately disclosed, the auditor adds a separate section titled Material Uncertainty Related to Going Concern. Readers of the report, especially creditors, typically pay close attention to this section.
Common Causes of a Modified Opinion
- Inventory or fixed assets cannot be verified because no adequate physical count was performed.
- Receivables are not supported by detailed schedules and cannot be confirmed.
- Allowances for receivable losses or employee benefit liabilities are not calculated in accordance with SAK.
- Related party transactions are not disclosed.
- Supporting documents for significant transactions are unavailable.
How to Prepare
- Close the books on time and reconcile key accounts, especially cash, bank, receivables, payables, and inventory.
- Conduct physical counts of inventory and fixed assets close to the reporting date.
- Prepare accounting estimates such as allowances for receivable losses and employee benefits.
- Discuss complex accounting issues with the auditor from the audit planning stage, not at the end.
More information about the audit process is available under Financial Statement Audit. To request a proposal, go to Proposal.
This article is for general information only and is not professional advice for any specific case. Regulations may change; please consult us about your situation.