Question

Provide your opinion on the impact of giving an unmodified (“clean”) audit opinion when in fact a modified audit opinion should have been given.  

Provide your opinion on the impact of giving a modified audit opinion when in fact an unmodified opinion should have been given.  There is no reach too small when discussing who or what is impacted.

Answer 1

"Unmodified (Clean) audit report" implies that the auditor has given an opinion that the financial statements and reports show true and fair view of the financial position of the entity. Whereas "modified audit report" is given by the auditor when there were reasons to believe that the financial position as depicted by the entity does not show true and view of its financial position or it shows true and view of its financial position subject to certain matters as reported by the auditor in 'auditor's report'.

Impact of giving an unmodified (“clean”) audit opinion when in fact a modified audit opinion should have been given:

Users of audit report primararily include shareholdes, investors, financial institutions, statutory governing bodies, employees etc. "Unmodified (Clean) audit report" would make these users believe that the financial position as disclosed by the company is true and fair and the decisions that they take with respect to the company will be based on this opinion. For example,

• for shareholders/investors, their decision to invest more or withdraw funds based on the financial results would be impacted
• for financial institutions, who have lent funds to the entity would decide their opinion on credit terms offered to the entity and also it's creditworthiness
• for statutory governing authorities, it will impact the correctness of tax collections from the entity or verification of its general adherence to the applicable statutes
• employees may study the financial results to decide on whether to continue with the entity or no.

Impact of giving a modified audit opinion when in fact an unmodified opinion should have been given:

"Modified audit report" would make these users believe that the financial position as disclosed by the company is not true and fair and the decisions that they take with respect to the company will be based on this opinion. The impact would be as illustrated in the example above, however believing the modifications as reported by the auditor.