The qualified audit report is the report issued by auditors when they find certain discrepancies in the audit of financial statements. In other words, during the performance of the audit procedures, auditors note that there are certain misstatements in the financial statement balances and disclosures that might impair the decision of the financial statement user. In such cases, auditors issue qualified audit reports.
The qualifications reported in the financial statement lead to a qualified opinion on the financial statement. The qualified opinion may be about the single/multiple account balances. It’s important to note that a qualified audit report is issued when a limited discrepancy in the financial statement. On the other hand, if there are severe issues in the financial statement, the auditors may issue an adverse opinion.
Also read, audit risk.
Similarly, if the auditor is not provided access to the accounting and other information required for the performance of audit procedures, they may issue qualified reports due to scope limitations.
The qualification in the audit report can be of different types that include the following,
- Adequate disclosures have not been made in the financial statement.
- Auditors were unable to understand and perform audit procedures to form an audit opinion on the set of financial statements.
- Accounting standards have not been followed in the preparation of the financial statement.
- Auditors have concerns about specific account balance.
It’s important to note that if auditors issue qualified audit reports, they need to mention the basis for reporting the qualification.
An example of a qualified audit opinion
Suppose the company has recorded overvalued inventories in the financial statement for $30,000. The auditors need to issue a qualified audit opinion on the given account balance, which may be in the wording like,
The company’s inventory has not been valued in line with the provisions and guidelines issued by the International Financial Reporting Standard and Generally Accepted Accounting principles.
In our opinion and to the best of our knowledge and information, except for the inventories balance we have qualified opinion, except for the given impact, the financial statement of the company gives a true and fair view.
What is a scope limitation?
Scope limitation refers to the fact that auditors could not perform audit procedures to collect sufficient and appropriate audit evidence on the set of the financial statement. The scope limitation may be in the form of limited time to perform audit procedures or problems in getting access to the accounting and another record mandatory for the performance of audit procedures.
Key audit matter – KAM
Key audit matter is the discussion about the most important and prevailing issues encountered during the audit fieldwork performance. International standard on auditing requires the disclosures of the KAM in the audit report to enhance the use of the audit report To Whom It May Concern.
Conclusion of qualified audit report
The qualified audit report is issued by auditors when they notice discrepancies in the financial statement. The discrepancy may be related to a single account balance or multiple. It’s important to note that qualification in the audit report leads to the qualification of the audit opinion. Further, if qualifications are severe, the auditors may issue a disclaimer opinion.
Likewise, auditors may issue the qualified report based on a scope limitation, and it’s issued when they are restricted from access to the accounting and other business record. In addition to this, limited time may be a factor for the basis of limited scope.
