The auditor believes the financial statements are in conformity

The auditor should obtain audit evidence that management acknowledges its responsibility for the fair presentation of the financial statements. The auditor should obtain written representations from management on matters material to the financial statements when other sufficient appropriate audit evidence cannot reasonably be expected to exist.

In connection with an audit of financial statements presented in accordance with generally accepted accounting principles, specific representations should relate to the following matters:

• Management's acknowledgment of its responsibility for the fair presentation in the financial statements of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles.
• Management's belief that the financial statements are fairly presented in conformity with generally accepted accounting principles.
• Availability of all financial records and related data.
• Completeness and availability of all minutes of meetings of stockholders, directors, and committees of directors.
• Communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices.
• Absence of unrecorded transactions.
• Information concerning subsequent events.
• Management's acknowledgment of its responsibility for the design and implementation of programs and controls to prevent and detect fraud.
• Knowledge of fraud or suspected fraud affecting the entity involving (1) management, (2) employees who have significant roles in internal control, or (3) others where the fraud could have a material effect on the financial statements.
• Knowledge of any allegations of fraud or suspected fraud affecting the entity received in communications from employees, former employees, analysts, regulators, short sellers, or others.
• Plans or intentions that may affect the carrying value or classification of assets or liabilities.
• Information concerning related-party transactions and amounts receivable from or payable to related parties.
• Guarantees, whether written or oral, under which the entity is contingently liable.
• Significant estimates and material concentrations known to management that are required to be disclosed.
• Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency.
• Unasserted claims or assessments that the entity's lawyer has advised are probable of assertion and must be disclosed.
• Other liabilities and gain or loss contingencies that are required to be accrued or disclosed.
• Satisfactory title to assets, liens or encumbrances on assets, and assets pledged as collateral.
• Compliance with aspects of contractual agreements that may affect the financial statements.

The written representations should be addressed to the auditor. Because the auditor is concerned with events occurring through the date of his or her report that may require adjustment to or disclosure in the financial statements, the representations should be made as of the date of the auditor's report. The letter should be signed by those members of management with overall responsibility for financial and operating matters whom the auditor believes are responsible for and knowledgeable about, directly or through others in the organization, the matters covered by the representations. Such members of management normally include the chief executive officer and chief financial officer or others with equivalent positions in the entity.

Management's refusal to furnish written representations constitutes a limitation on the scope of the audit sufficient to preclude an unqualified opinion and is ordinarily sufficient to cause an auditor to disclaim an opinion or withdraw from the engagement. However, based on the nature of the representations not obtained or the circumstances of the refusal, the auditor may conclude that a qualified opinion is appropriate.

If the auditor is precluded from performing procedures he or she considers necessary in the circumstances with respect to a matter that is material to the financial statements, even though management has given representations concerning the matter, there is a limitation on the scope of the audit, and the auditor should qualify his or her opinion or disclaim an opinion.

Effective date

This Statement is effective for audit of financial statements with fiscal years ending on or after 31 December, 1985.

An unqualified opinion is an independent auditor's judgment that a company's financial statements are fairly and appropriately presented, without any identified exceptions, and in compliance with generally accepted accounting principles (GAAP).

Key Takeaways

• An unqualified opinion means an independent auditor has judged a company's financial statements to be fair and appropriately represented.
• An unqualified opinion is the most common type issued by auditors.

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What Is an Unqualified Opinion?

Understanding Unqualified Opinions

An unqualified opinion is essentially a clean report. It indicates the auditor is satisfied with the company's financial reporting. It is the type of opinion most companies expect to receive from an independent auditor and reassures investors in the company that the financial information they have been given is presented in an accurate and fair manner.

An unqualified opinion is the most common type given in an auditor's report. Like any auditor’s opinion, it does not judge the actual financial position of the company or interpret financial data. It simply indicates that the independent auditor has seen enough information to conclude that the company's financial statements conform to GAAP and fairly present the company's financial position for the stated time frame. It is issued when the auditor believes that all changes, accounting policies, and their application and effects, have accurately been disclosed.

Unqualified Opinion vs. Other Opinions

An auditor can give four basic types of opinion:

• Unqualified opinion
• Qualified opinion
• Adverse opinion
• Disclaimer of opinion.

With a qualified opinion, the auditor has determined there is a material issue regarding accounting policies—but one that does not misrepresent the factual financial position. Auditors typically qualify reports with statements like "except for the following adjustments," when they have insufficient information to verify certain aspects of the transactions and reports being audited.

Qualified opinions may also be issued if the financial statements deviate from GAAP or have inadequate disclosure. The auditor might report an adverse opinion if they believe the financial statements do not accurately represent the company's financial position. They might also issue a disclaimer of opinion if they cannot issue an opinion on the financial statements because something has prevented them from gathering enough information.

What factors should an auditor consider in determining whether financial statements are presented fairly in conformity with applicable financial reporting standards?

When the auditors express an opinion on financial statements?

How does the auditor use financial statement assertions?

What is the responsibility of the auditor with regard to the financial statements?