Question

Please answer this question in your own words.

Company A and Company B are in same industry and have similar market capitalization and financial health. However, recent external audit report specified "unmodified opinion" for Company A and "qualified opinion" for Company B. Based on the information, as an equity investor, which company you prefer to invest and why? Explain your answer by referring to the divisions of 'qualified opinion' and 'unmodified opinion". Your answer should be justifying the reason why you decided to invest in such company?

Answer 1

AUDIT OPINION : Auditor plans an audit based on size and nature of entity and performs Audit Procedures and Audit Techniques to obtain Sufficient Appropriate Audit evidence . Based on Obtained audit evidence , auditor draws conclusions and forms an opinion on financial statements that whether they are showing true and fair view or not . Auditor expresses audit opinion by way of Audit Report. Changes in Economic decisions of users of financial statements occurs due to opinion expressed on financial statements through audit report by the auditor.

COMPANY A : UNMODIFIED OPINION :

An Unmodified opinion is also known as Clean opinion. when there are no material misstatements and Financial statements are showing true and fair view then auditor will issue Unmodified opinion. Inorder to issue Unmodified opinion auditor needs to obtain sufficient appropriate audit evidence . For Company A - auditors issued an Unmodified opinion means a clean report . Investors can invest in Company A.

COMPANY B : QUALIFIED OPINION :

If Auditor Obtained sufficient appropriate audit evidence : If found that misstatements in Financial statemnets are materially misstated but not pervasive , then auditor expresses Qualified opinion.

  If Auditor is unable to Obtain sufficient appropriate audit evidence : Even after performing planned audit procedures and alternative audit procedures still not able to obtain audit evidence on which to base the opinion , but the auditor concludes that the possible effects on the financial statements of undetected misstatements , if any, could be material but not pervasive. In that case auditor expresses Qualified Opinion.

In this case , Auditor issued Qualified opinion to Company B means there are material misstatements in financial statements which are not pervasive. Investors are advised not to invest in Company B.

CONCLUSION: Investors are advised to invest in Company A rather than Company B .