In financial reporting, an auditor's opinion is the outcome of an auditor's review of an organization's financial statements.
The auditor's opinion does not judge the financial position of the reporting entity. Nor does it otherwise interpret accounting data. Instead, the published opinion addresses two questions:
- Firstly, do the statements conform to Generally Accepted Accounting Principles (GAAP)?
- And, secondly, do they fairly represent the entity's financial accounts?
Four Names For the Opinion
Note that formal audit results may be called Auditor's Opinion, Report, or Statement. Or, they may also appear as Accountant's Opinion, Report, or Statements. These terms all mean almost the same thing.
- The Accountant's Opinion or Auditor's Opinion focuses on the actual opinion, one of the four possible outcomes described below.
- The terms Statement or Report imply that the text includes the opinion, but also:
- The responsibilities of auditors
- Responsibilities of directors and corporate officers
- The scope of coverage
Four Possible Audit Outcomes
Sections below further define and explain financial reporting audits. This article covers the four primary kinds of audit outcomes:
- Unqualified opinion
- Qualified opinion
- Adverse opinion
- Disclaimer of opinion
- What is an auditor's opinion?
- Who performs the audit? And, who is responsible for the opinion?
- What are the four possible auditor's opinions? Which opinion is the best possible outcome?
- For more on the general nature of auditing, and other audit classes (internal audits, project audits, and management audits) see the article Audit.
- See Annual Report for more on the role of auditors opinions in reporting.
- The article Accountant describes the nature and background requirements for the accounting profession.
An audit examines a report. Its purpose is to assess report transparency and accuracy. Auditors perform these inspections and take personal responsibility for audit results.
In business, auditors may be accountants, financial specialists, project managers, line managers, technical experts, security experts, and others. The only universal requirement for working as an auditor is recognized expertise in the area under audit. This recognition is crucial because the resulting opinion must speak with authority.
Two rules also apply universally for auditing:
- Firstly, the auditor does not report to the person under audit. The auditor, therefore, cannot receive discipline or reward from this person.
- Secondly, the auditor's pay does not depend on the audit outcome. The auditor, therefore, has no financial incentive to choose one opinion over another.
These rules, naturally, reinforce auditor impartiality.
Auditors serve as either internal or external auditors.
- Internal auditors report directly to very senior managers or directors.
- Externalauditors are outside the entity's management hierarchy. They are therefore known also as independent or third-party auditors.
Internal Financial Audits
Directors and officers in many firms rely on internal financial audits. As a result, corporate officers and boards of directors build internal financial audits into the firm's governance structure.
Investor-owned hotels, for example, run financial audits nightly. They do this because they must be sure that managers and other staff do not allow guests to build large outstanding balances. The industry even has job titles for this role, such as "Night Auditor" or "Night Accountant."
Similarly, internal auditors everywhere are always on the watch for such things as;
- Accounting fraud.
- Inventory leakage.
- Reimbursement abuse.
Internal auditors almost always report only to corporate officers or directors. Note that some organizations discourage their internal auditors from developing close personal ties, or social relationships with their colleagues—the people they audit.
Independent Third-Party Auditors
By contrast, independent third-party auditors, who write the formal opinions appearing below, are entirely outside the entity they audit. They are therefore assumed free of influence from all levels of the group they are auditing.
Independent auditors are usually certified accountants or financial specialists, working for themselves or consulting firms. They are therefore responsible only to their managers, regulators, governments, and the law.
Note that third-party opinion is mandatory for financial results appearing in an Annual Report to Shareholders. And, this review is almost always required when firms submit financial statements to regulators, governments, or lenders.