What is a qualified opinion?
After an audit, the auditor issues an opinion on whether the [financial statements](/glossary/financial-statements) give a true and fair view. A qualified opinion means "fair, except for…". It is a warning sign, but less serious than an adverse opinion or a disclaimer.
The four types of audit opinion
- Unmodified (clean): statements are fairly presented.
- Qualified: fairly presented except for a specific matter.
- Adverse: statements are materially misstated and the issue is pervasive.
- Disclaimer of opinion: the auditor couldn't get enough evidence to form an opinion.
These are set out in ISA 705.
Common reasons for a qualification
- Misstatement: the company refuses to adjust a [material](/glossary/materiality) error, such as not providing for a doubtful debt.
- Scope limitation: the auditor couldn't verify something, such as attending an inventory count or getting records for a subsidiary.
What it means for the business
- Lenders and investors may ask questions or tighten terms.
- It can affect loan covenants, tenders and regulatory standing.
- The issue usually needs fixing before the next audit.