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The auditor expresses his opinion in the report, whether the accounts and
balance sheet of the company give a true and fair picture of the state of its
affairs and the results of its operations.
The opinion expressed by the auditor may be as follows:
1) A qualified opinion.
2) An adverse opinion.
3) A disclaimer of opinion.
AAS-1 mentions Audit Conclusions and Reporting as one of the basic
principles governing an audit which that the auditor should review and assess
the conclusions drawn from the audit evidence obtained from his knowledge
of business of the entity as the basis for the expression of his opinion on the
financial information. This review and assessment involves forming an overall
conclusion as to whether:
a) The financial information has been prepared using acceptable accounting
policies which have been consistently applied:
b) The financial information complies with relevant regulations and statutory
c) There is adequate disclosure of all material matters relevant to the proper
presentation of the financial information, subject to statutory requirements,
where applicable.
T he audit report should contain a clear written expression of opinion on the
financial information and of the form or content of the report laid down in or
prescribed under any agreements or statute or regulation, the audit report
should comply with such requirements. An unqualified opinion indicates the
auditors satisfaction in all material respect with the matters specified above
in or as may be laid down or prescribed under the relevant agreement or
statute or regulation as the case may be. In case of companies, Section 227
of the companies Act, 1956 deals with requirements relating to audit report.
Further as per AAS-1,when a qualified opinion, adverse opinion or a
disclaimer of opinion is to be given or reservation of opinion on any matter is
to be made, the audit report should state the reasons there for. With this
background, the auditors views on different types of opinion are given below:

1) A Qualified opinion: A qualified opinion is issued when the auditor

concludes that he cannot issue an unqualified opinion but that the effect of

any disagreement, uncertainty or limitations on scope is not so material as to

require an adverse or a disclaimer of an opinion. It is given in respect of a
part of the information reflected in the financial statements and that the
auditor is not in agreement with that part. Moreover, the part with reference
to which he is not in agreements does not materially affect the view
portrayed by the financial statement. Thus, the need for a qualified opinion
arises where the auditor is satisfied with the truth and fairness of the financial
statements; yet because of certain transaction he is not fully satisfied so as
to issue a clean or unqualified report. There can be numerous situations
where it would be proper to opt for a qualified opinion.
For example, the expenditure on purchase of Rs. 1 crore are not supported by
original supporting amounting to Rs. 10 lakhs, it may be proper for the
auditor to qualified his report with regard to purchases worth Rs. 10 lakhs
rather than state an adverse opinion because he is satisfied about the
truthness and fairness of the balance purchases worth Rs. 90 lakhs and all
other transaction booked in the accounting record.
Statements on Qualification in Auditors Report, specifies manner of
qualification to ensure a certain degree of uniformity and to assist the public
in evaluating the content of Auditors report. As per the statements all
qualifications should be contained in the auditors report, the impact of
qualification on financial statements be quantified to the extent practicable
and the words, subject to must precede the qualification. An auditor
qualifying the audit report must ensure that the qualifications are brought out

2) An Adverse Opinion: An adverse opinion is issued by the auditor when

the financial statements do not show a true and fair view of the state of
affairs or of the operating results. All times when the effect of disagreement
is so material and pervasive on financial statements that the auditor
concludes that the qualification in the audit report is not adequate to disclose
the misleading picture of the financial statements.
An adverse opinion is given when there is flagrant violation of accounting
principles or evidence is not available for material transaction or where there
exists material misstatement or concealment about financial affairs. The
auditor must have sufficient evidence in favour of his conclusions. It should
be appreciated that this opinion is also on overall opinion on the entire
financial statements and owes direct relationship to the portrayal of the
financial position in the financial statements. Where the auditor gives an
adverse opinion, he must disclose all material reasons there for and clearly
state that the financial statements do not reflect a true and fair view.

3) A Disclaimer of Opinion: Such an opinion has to be necessarily issued

when the auditor is unable to express an opinion on the financial statements
because he fails to obtain sufficient information to form an opinion. This may
arise when certain limitations are imposed on the scope of audit by the
management or because of significant uncertainty in determination of various
figures appearing in the financial statements. For instance non-availability of
records either because they are destroyed in fire or seized by the government
authorities or they are not accessible for any other reason. Such an opinion is
appropriate when an auditor fails to obtain sufficient evidence to express an
opinion because in the absence of records he cannot conclude that the
accounts do not reflect a true and fair view. The auditor must also state the
reason whenever disclaimer of opinion is given.