What is a Qualified Opinion?
How Does a Qualified Opinion Work?
2.) Limitation of scope: Not all financial statement information was available to the auditor. However, the financial information that was audited conformed with GAAP.
For example, let's assume that Company XYZ is a publicly traded company. At 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 that Company XYZ has not accounted for inventory correctly, has kept incomplete records regarding its cash accounts, and did not provide adequate records for review regarding depreciation. As a result, the auditor would likely give a qualified opinion for Company XYZ due to both limitation of scope (incomplete records) and deviation from GAAP (errors in accounting for inventory).
Why Does a Qualified Opinion Matter?
The qualified opinion appears in the form of a letter that accompanies the firm's financial statements.
A qualified opinion is a strong signal to investors that a company's financial accounting methods need to be improved upon and aren't necessarily wholly reliable. A qualified opinion is not the same as an adverse opinion, which is a more severe cautionary report containing extensive exceptions and warnings.
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