Adverse Opinion report

An Adverse Opinion is issued when the auditor determines that the financial statements of an auditee are materially misstated and, when considered as a whole, do not conform with GAAP. It is considered the opposite of an unqualified or clean opinion, essentially stating that the information contained is materially incorrect, unreliable, and inaccurate in order to assess the auditee’s financial position and results of operations. Investors, lending institutions, and governments very rarely accept an auditee’s financial statements if the auditor issued an adverse opinion, and usually request the auditee to correct the financial statements and obtain another audit report.

Disclaimer of Opinion report

A Disclaimer of Opinion, commonly referred to simply as a Disclaimer, is issued when the auditor could not form, and consequently refuses to present, an opinion on the financial statements. This type of report is issued when the auditor tried to audit an entity but could not complete the work due to various reasons and does not issue an opinion.

Statements on Auditing Standards (SAS) provide certain situations where a disclaimer of opinion may be appropriate:

· A lack of independence, or material conflict of interest, exists between the auditor and the auditee.

· There are significant scope limitations, whether intentional or not, which hinder the auditor’s work in obtaining evidence and performing procedures.

· There is a substantial doubt about the auditee’s ability to continue as a going concern or, in other words, continue operating.

· There are significant uncertainties within the auditee.

Investors, lending institutions, and governments typically reject an auditee’s financial statements if the auditor disclaimed an opinion, and will request the auditee to correct the situations the auditor mentioned and obtain another audit report.