Lessons · Accounting · the four things an audit report can say
The four things an audit report can say
Unmodified when the statements are fairly stated. Qualified when something is materially wrong or unverifiable but limited to specific areas. Adverse when a misstatement is so pervasive the statements as a whole are misleading. A disclaimer when the auditor could not obtain enough evidence to form any opinion at all.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
In beta. This lesson was written for Hone and has not yet been checked by a qualified accountant. Practice material, not professional advice. What that means.
What it is for
Two questions decide it, and they are independent: is the problem a misstatement or a lack of evidence, and is it confined to part of the accounts or does it run through them. Those two answers land you in exactly one of four boxes.
How to think about it
Ask which of the two problems you have, then how far it spreads. Misstatement and limited gives qualified; misstatement and pervasive gives adverse. Lack of evidence and limited gives qualified; lack of evidence and pervasive gives a disclaimer.
Worked example
One balance is wrong and material, the rest is fineMisstatement, not pervasive. Qualified.
The misstatement runs through the statements as a wholePervasive. Adverse.
One area could not be verified, the rest couldEvidence problem, not pervasive. Qualified.
Records destroyed and nothing can be verifiedEvidence problem, pervasive. Disclaimer.
Your turn
Name the opinion given when a misstatement is so pervasive the statements as a whole mislead.
A pervasive misstatement gives an opinion
Solve one, graded on the server
The trap
Treating a disclaimer as the most severe verdict. It is not a verdict at all: it says the auditor could not reach one. Adverse is the statement that the accounts are wrong, and it is the stronger thing to say.