Audit Opinion: 4 types | Unqualified & Unmodified Opinion | Qualified Opinion | Adverse Opinion

Summary

In this session, Professor Farhad discusses various audit opinions, focusing on the CPA exam's auditing section. He outlines four types of audit opinions: unmodified (clean), qualified, adverse, and disclaimer. He explains the conditions for an unmodified opinion and when to use explanatory paragraphs. Farhad also covers situations leading to modified opinions, emphasizing materiality and pervasiveness. He advises connecting on LinkedIn, subscribing on YouTube, and visiting his website for more resources, encouraging students to take their CPA exam preparation seriously.

Takeaways

• 👨‍🏫 The session is led by Professor Farhad, focusing on summarizing audit opinions covered in the playlist.
• 🔗 Professor Farhad encourages connecting with him on LinkedIn and subscribing to his YouTube channel for more accounting, auditing, tax, and finance lectures.
• 📚 The playlist includes a comprehensive list of courses, particularly beneficial for CPA exam preparation.
• 📈 There are four types of audit opinions: unmodified (or unqualified/clean), qualified, adverse, and disclaimer.
• 🟢 An unmodified opinion with an explanatory paragraph is still considered unmodified but highlights additional information for users.
• 🔍 Conditions for a clean unmodified opinion include complete financial statements, sufficient appropriate evidence, fair presentation, and no need for emphasis on any matter.
• 🚫 If an unmodified opinion isn't justified, auditors consider departures from GAAP, restrictions by the client, or lack of auditor independence.
• 📉 Materiality and pervasiveness of issues determine the type of opinion given: qualified for material but not pervasive issues, adverse for material and pervasive issues.
• ❌ A disclaimer opinion is issued if the auditor is not independent, regardless of materiality.
• 💼 Professor Farhad's website, Forhad Lectures, offers additional resources for CPA exam preparation.

Q & A

What are the four types of audit opinions mentioned in the script?

The four types of audit opinions mentioned are unmodified (or unqualified), qualified, adverse, and disclaimer.

What is an unmodified opinion with an explanatory paragraph?

An unmodified opinion with an explanatory paragraph is still an unmodified opinion, but it includes additional information that the auditor believes is important for users to know, such as a lack of consistency in the application of GAAP, substantial doubt about going concern, or emphasis of other matters.

What are the conditions required for an unmodified or unqualified audit opinion?

For an unmodified or unqualified audit opinion, four conditions are required: all financial statements are included, there is sufficient appropriate evidence, the financial statements present fairly within the framework being used, and there are no circumstances requiring additional emphasis of a matter or paragraph.

What is the difference between an adverse opinion and a disclaimer of opinion?

An adverse opinion is issued when there is a material and pervasive GAAP issue that the auditor does not agree with. A disclaimer of opinion is issued when the auditor is not independent, which is a general standard issue, and materiality is not a consideration in this case.

Why might an auditor issue a qualified opinion?

A qualified opinion is issued when there is a material departure from GAAP that is not pervasive to the entire financial statements, or when there is a scope restriction imposed by the client that is material but not pervasive.

What does it mean for an issue to be 'material but not pervasive'?

An issue is considered 'material but not pervasive' when it significantly affects the financial statements but does not impact the overall presentation to such an extent that it would change the overall opinion from unmodified to adverse or disclaimer.

How does the auditor's independence affect the audit opinion?

If an auditor is not independent, it is a general standard issue, and a disclaimer of opinion is issued regardless of the materiality of the issue, as independence is a fundamental requirement for an audit.

What should a candidate do if they find the script's content helpful for their CPA exam preparation?

A candidate should consider subscribing to the YouTube channel, liking the lectures, sharing them, and checking out the website for additional resources to supplement their CPA exam studies.

What is the significance of the color red used for the words 'adverse' and 'disclaimer' in the script?

The color red is used to reflect that adverse and disclaimer opinions are unfavorable and indicate significant issues with the financial statements or the audit process.

What additional resources does Professor Farhad recommend for CPA exam preparation?

Professor Farhad recommends visiting his website, forhadlectures.com, for additional resources, including lectures and materials specifically designed to support CPA exam candidates.