Once an audit of your company is completed your auditor will provide you with a full, detailed audit report and they are likely to request a meeting to go over this with you to clarify any points within it.
If your company does not regularly conduct audits then it can, at times, be challenging to decipher what these reports mean.
Within the financial statement, auditors are required to provide either an unmodified opinion, which is commonly referred to as a ‘clean’ opinion or a modified opinion.
An unmodified opinion is provided where an auditor believes financial statements give a true and fair view of the company affairs at that time.
In comparison, a modified audit opinion can arise where there is an error, a disagreement over a particular matter or a lack of sufficient audit evidence in a particular area of the financial statements.
There are three types of modified audit opinion based on the level of error or disagreement, these are as follows:
Qualified opinion – This occurs where an auditor has been unable to obtain ‘sufficient appropriate audit evidence’ concerning a particular matter, but, except for the possible effects of this matter, the auditor can state that the financial statements give a true and fair view; or there is a particular material misstatement in the financial statements.
Disclaimer of opinion – An auditor is unable to obtain ‘sufficient appropriate audit evidence’, which is so pervasive that the auditor is unable to form a view as to whether the financial statements give a true and fair view.
Adverse opinion – This occurs where an auditor believes, having obtained sufficient evidence, that there is a material and pervasive misstatement in the financial statements and that, because of the significance of the matter, the financial statements do not give a true and fair view.
Alongside the audit opinion, auditors may reference material uncertainties about going concern or other specific matters in the financial statements.
These matters do not change the audit opinion but are of note to the person or business receiving the report.
Another standard feature of an audit report is key audit matters, intended to provide additional information to investors and other users. These are not material uncertainties or emphases of matter.
According to the Institute of Chartered Accountants in England and Wales, the audit profession expects to see more modified audit opinions as a result of COVID-19, as well as more material uncertainties highlighted in audit reports in relation to going concern.
Reading and understanding your audit report is a key part of the overall audit process. In most cases the auditor should meet with you, whether in person or digitally, to outline the conclusions that have been reached.
If you are looking for advice on audits, please contact your Seymour Taylor representative today or email enquiries@stca.co.uk or call 01494552100.
This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing16 April 2021.