Question

10- What are the different types of auditor’s opinion, briefly explain? Identify which type of opinion is given below for Delta Company?

“The auditor believes Delta Company faces a going concern Going Concern. However, every decision in a company is taken with the objective in mind of running the business rather than that of liquidating it and in fact it is unable to survive another year. Delta Company disagrees and prepares its financial statements on a historical cost basis instead of on a liquidation basis. In such a scenario, a GAAP departure reservation is made. Since Delta Company prepared its financial statements on a historical cost basis, most of the company’s accounts are incorrect”.

Answer 1

1. Unqualified Opinion: The auditor expresses Unqualified Opinion when the financial books and statements audited are in accordance with the financial reporting framework and complies with the required accounting standards, GAAP and is free of any misstatements or misrepresentations. It is often referred as a Clean Opinion.
2. Qualified Opinion: When the financial statements that have been audited, are free from any material mistatement or misrepresentation, but somewhere are not in accordance with the accounting standards or GAAP, the audition needs to qualify his opinion. He should also explain why no unqualified opinion was given in his audit report.
3. Adverse: In case the financial statement that are not in accordance with the accounting standards framework or GAAP moreover are materially mistated, the auditor shall express adverse opinion. This is worst of all audit opinions. Such opinion may not only open up the statement to suspect for gross errors but also precipitate frauds.
4. Disclaim from giving opinion: Sometimes auditor may not be able to express an opinion due to several reasons pertaining to absence or availability of records and evidences to form an opinion. Hence he can chose to refrain from giving any opinion and explain to the audit committee his reasons for the same.

In the given case, there is significant departure from GAAP. Moreover the financial statements are incorrect. Hence materially mistated. The auditor was not refrained from providing any documents or records. Thus auditor can express an opinion. Since the financial statements are materially mistated and not in accordance with the accounting principles, he should express Adverse Opinion.