Audit Opinion

In the realm of auditing, an audit opinion is more than just a mere statement—it's a formalized conclusion that carries immense weight for everyone who relies on a company's financial information. The term is vital for CPA candidates to comprehend, as it pops up frequently in the Auditing and Attestation (AUD) section of the US CPA exams. Audit opinions are categorized into four types: Unqualified, Qualified, Adverse, and Disclaimer. Each category serves as a yardstick that measures how closely a company's financial statements adhere to Generally Accepted Accounting Principles (GAAP).

1. Unqualified Opinion: Also known as a "clean" opinion, it signifies that the financial statements give a true and fair view of the financial position of the company and are in accordance with GAAP.

2. Qualified Opinion: This suggests that, except for certain issues, the financial statements are generally in line with GAAP.

3. Adverse Opinion: An opinion you never want to see, it states that the financials are not in accordance with GAAP and are not a true and fair representation of the company’s financial position.

4. Disclaimer: This means the auditor could not complete an adequate audit and hence cannot provide an opinion. 

Example: Suppose you are an auditor tasked with examining XYZ Corp, a company listed on the NASDAQ. After months of meticulous work, you find that its financials are entirely in line with GAAP, except for a non-disclosure of a significant lawsuit that could potentially impact the company's financial health. In this scenario, you would likely issue a Qualified Opinion, highlighting the matter adequately in your audit report.