Disclaimer of opinion
From Wikicpa
A disclaimer of opinion is no opinion. During an audit engagement, a disclaimer would be required when substantial scope restrictions or other conditions preclude the auditors’ compliance with generally accepted auditing standards.
Substantial scope restrictions
If a scope restriction is so severe that a qualified opinion is inappropriate, the auditors should issue a disclaimer of opinion. This might happen, for example, if the auditors were engaged after year-end and the client had not taken a physical inventory. A disclaimer issued because of a scope limitation will have appropriate qualifying language in the scope paragraph, as well as a middle paragraph explaining the scope limitation. The wording of the opinion paragraph will change considerably, because the auditors are not expressing an opinion—rather, they are saying that they have no opinion.
Disclaimers of opinion because of scope restrictions are relatively rare. The auditors should be able to foresee these types of problems in early planning stages of their engagement. The client usually will not want to incur the cost of an audit if it is apparent from the start that the auditors must issue a disclaimer of opinion.
Illustrated opinion
- To the Board of Directors and Shareholders
- ABC Company
- Address
- We have audited the accompanying balance sheets of ABC Company as of December 31, 20XX and 20XX, and the related statements of income, retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
- Except as explained in the following paragraph, we conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
- The company did not take a physical inventory of merchandise stated at $425,000 in the accompanying financal statements as of December 31, 20XX and at $505,000 as of December 31, 20XX. Furthur, evidence supporting the cost of telephone equipment acquired prior to December 31, 20XX is no longer available. The Company records do not permit the application of adequate alternative procedures regarding inventories or the cost of the telephone equipment.
- Since the Company did not take a physical inventory and we were unable to apply adequate alternative procedures regarding inventories and cost of the telephone equipment, as noted in the preceding paragragh, the scope of our work was not sufficient for us to express, and we do not express, an opinion on the financial statements referred to above.
(Signature)
(Date)
