4 TYPES OF AUDIT OPINION (REPORT) - AUDITING THEORY

Summary

In this educational video, Ron, a certified public accountant and former external auditor, introduces the four types of audit opinions: unqualified (clean), qualified, adverse, and disclaimer of opinion. He explains each type, including when an auditor might issue them based on the materiality and pervasiveness of financial statement misstatements. The video aims to simplify complex auditing concepts for viewers interested in accounting and financial reporting.

Takeaways

• 🔍 This video discusses the four types of audit reports issued by auditors.
• 🌟 The presenter, Ron, is a certified public accountant and a former external auditor.
• 📊 The four types of audit opinions are unqualified, qualified, adverse, and disclaimer of opinion.
• 📈 An unqualified opinion, or clean opinion, is the most common and indicates the financial statements are fairly presented.
• 🚩 A qualified opinion is issued when material but not pervasive misstatements are found.
• ❌ An adverse opinion is given when the financial statements are not fairly presented due to material and pervasive misstatements.
• ⚠️ A disclaimer of opinion is used when the auditor cannot obtain sufficient evidence to form an opinion.
• 📖 The video explains that 'material' misstatements are significant enough to affect user decisions, but 'not pervasive' means they do not affect all areas.
• 📚 The Philippine Standards on Auditing (PSA 705) is referenced to define material and pervasive misstatements.
• 🔎 The video provides examples to illustrate how different types of misstatements lead to different audit opinions.
• 💡 The video concludes with a recap of the four audit opinions and encourages engagement from viewers.

Q & A

What are the four types of audit opinions discussed in the video?

The four types of audit opinions discussed are unqualified opinion, qualified opinion, adverse opinion, and disclaimer of opinion.

What is an unqualified opinion in an audit report?

An unqualified opinion, also known as a clean opinion, is the most common type of opinion issued by an auditor. It indicates that the auditor is satisfied with the financial statements and believes they are fairly presented in all material respects according to the applicable financial reporting framework.

What does it mean when an auditor issues a qualified opinion?

A qualified opinion is issued when the auditor believes that the financial statements are fairly presented except for the potential effects of material but not pervasive misstatements. This means there are some material errors that are not widespread enough to affect the overall fairness of the financial statements.

Can you explain the adverse opinion in the context of audit reports?

An adverse opinion is issued when the auditor concludes that the financial statements are not fairly presented due to material misstatements that are both significant in amount and pervasive throughout the financial statements.

What circumstances lead to a disclaimer of opinion in an audit report?

A disclaimer of opinion is issued when the auditor is unable to obtain sufficient appropriate evidence to form an opinion. This could be due to limitations in the scope of the audit or other circumstances that prevent the auditor from making a conclusive assessment of the financial statements.

Why might an auditor consider misstatements as pervasive in a financial statement?

Misstatements are considered pervasive when their effects are not confined to specific elements, accounts, or items within the financial statements. They could represent a substantial proportion of the financial statements or affect the financial statements in every part.

What does the term 'material' mean in the context of audit opinions?

In the context of audit opinions, 'material' refers to the significance of misstatements or omissions in the financial statements. Material misstatements are those that could potentially influence the economic decisions of users of the financial statements.

How does an auditor determine if misstatements are material in the financial statements?

An auditor determines if misstatements are material by considering the size and nature of the misstatement in relation to the financial statements as a whole. This includes assessing whether the misstatement could affect the decisions of users of the financial statements.

What is the role of the auditor in the context of issuing an audit opinion?

The role of the auditor is to express an opinion on the fairness with which the financial statements are presented, based on the audit evidence obtained. This involves evaluating the financial statements against the applicable financial reporting framework and issuing one of the four types of audit opinions.

Why is it important for users of financial statements to understand the type of audit opinion issued?

Understanding the type of audit opinion is important for users of financial statements because it provides insight into the quality and reliability of the financial information presented. Different opinions can signal potential issues or limitations in the financial statements that could affect the users' decisions.

What steps can an audit client take to ensure an unqualified opinion is issued by the auditor?

To ensure an unqualified opinion, an audit client should ensure that their financial statements are prepared accurately and in accordance with the applicable financial reporting framework. They should also provide the auditor with full access to all relevant information and cooperate fully during the audit process.