Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Unqualified Opinion

What it is:

An unqualified opinion is a written notice from an auditor stating that a company has complied with generally accepted accounting principles (GAAP).

How it works (Example):

For example, let’s assume that Company XYZ is a publicly traded company. After the year-end, Company XYZ hires Auditor ABC to conduct an audit of its financial statements, practices and controls for the previous fiscal year. Auditor ABC discovers no material errors in Company XYZ’s accounting practices (for example, the auditor verifies that Company XYZ has accounted for inventory correctly, has kept good records regarding its cash accounts, and provided adequate records for review regarding depreciation). As a result, Auditor ABC issues an unqualified opinion, which appears in the form of a letter that accompanies Company XYZ’s financial statements.

Why it Matters:

An unqualified opinion is a good thing. It is a notice to investors and regulators that the auditor has no significant concerns about the accuracy of a company’s financial records and that it has verified that the company is following accounting rules. The opposite of an unqualified opinion is a qualified opinion, which is a red flag from the auditor.