Qualified opinion
From Wikicpa
An Qualified opinion is a modification of the Auditors’ standard report, employing an except for or subject to clause to limit the auditors’ endorsement of the financial statements. A qualified opinion indicates that except for some limitation on the scope of the examination, some departure from generally accepted accounting principles, some inconsistency in the use of accounting principles, or subject to some unresolved uncertainty, the financial statements are fairly presented.
Sample report
Unqualified Opinion Based on Materiality
If the beginning inventory is immaterial to the income statement, the issuance of an unqualified opinion on the basic financial statements taken as a whole is appropriate. Of course, under GAAS, if the inventory is material, an unqualified opinion is appropriate only when warranted by alternative procedures that would provide sufficient, competent evidential matter.
Unqualified Opinion Based on Alternative Procedures
If the beginning inventory is material, the first option is eliminated. In this case, the beginning inventory number must be supported. Since it is physically impossible to observe the beginning inventory, the auditor must conduct alternative procedures to support beginning inventory in place of the observation of physical inventory. According to SAS No. 1 (AU 331.13), an independent auditor may "be able to become satisfied as to such prior inventories through appropriate procedures ... provided that he or she has been able to become satisfied as to the current inventory." Appropriate procedures include, but are not limited to, tests of prior transactions, review of prior inventory counts and inventory instructions, performance of gross profit tests, and client inquiries. Additional matters to consider are familiarity with the client, length of association, and prior years' inventory balances. If sufficient evidence is obtained regarding the beginning inventory, the auditor may appropriately issue an unqualified opinion on all the financial statements.
To The Board of Directors:
- We were engaged to audit the accompanying balance sheet of ABC Company as of December 31, 20XX, and the related statements of income, retained earnings, and cash flows for the year 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 audit.
- Except as explained in the following paragraph, we conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a 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. We believe that our audit provides a reasonable basis for our opinion.
- We did not observe the taking of the physical inventory as of December 31, 20XX, since that date was prior to our appointment as auditors for the Company, and we were unable to satisfy ourselves regarding inventory quantities by means of other auditing procedures. The inventory amount as of December 31, 20XX, entered into the determination of operations and cash flows for the year ended December 31, 20XX.
- Because of the matter discussed in the preceding paragraph, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion on the results of operations and cash flows for the year ended December 31, 20XX.
- In our opinion, the balance sheet of ABC Company as of December 31, 20XX, presents fairly, in all material respects, the financial position of ABC Company as of December 31, 20XX, in conformity with generally accepted accounting principles.
- April 2, 20XX
- Your Independent Auditor
