posted on 06-06-2019

Unqualified Opinion

Updated August 11, 2020

What is an Unqualified Opinion?

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

How Does an Unqualified Opinion Work?

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 Does an Unqualified Opinion Matter?

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.