Audit Opinion
Kyle Ashcraft, CPA · 2019 CPA Exam Scores · 95 FAR · 98 BEC · 91 REG · 90 AUD
An audit opinion is a formalized conclusion that carries real weight for everyone who relies on a company's financial statements, and it's a heavily tested topic on the AUD section of the CPA exam.
What is an audit opinion?
An audit opinion is the auditor's formal conclusion on how closely a company's financial statements adhere to Generally Accepted Accounting Principles (GAAP). There are four types.
What are the four types of audit opinions?
- Unqualified opinion — also known as a "clean" opinion, it states that the financial statements give a true and fair view of the company's financial position and are in accordance with GAAP
- Qualified opinion — the financial statements are generally in line with GAAP, except for certain identified issues
- Adverse opinion — the financials are not in accordance with GAAP and don't fairly represent the company's financial position
- Disclaimer of opinion — the auditor couldn't complete an adequate audit, so no opinion can be provided
Example: You're auditing XYZ Corp, a company listed on the NASDAQ. After months of work, you find its financials are entirely in line with GAAP, except for a non-disclosure of a significant lawsuit that could impact the company's financial health. Because that's a real but non-pervasive issue, you'd likely issue a Qualified Opinion, calling out the lawsuit disclosure adequately in your audit report.
The line between a qualified and an adverse opinion comes down to how far the problem reaches. An isolated, material issue — like one undisclosed lawsuit — gets a qualified opinion. Something material and pervasive across the financial statements gets an adverse opinion instead.
Want the full AUD framework?
My free CPA 101 course covers the study approach I used to score 90+ on every CPA exam section.
More on AUD
Kyle Ashcraft, CPA scored 90 or above on every section of the CPA exam in 2019, including a 90 on AUD. He is the founder and sole instructor of Maxwell CPA Review, a complete CPA review course covering all six sections, where he creates every lecture, textbook and study outline himself.