Disclaimer of opinion meaning
Disclaimer of opinion means that auditors were not able to make any opinion on the financial statement of the business. So, the next question arises, why auditors would issue a disclaimer of opinion?
Why auditors issue a disclaimer of opinion
The answer is that it can be due to several reasons that include but are not limited to the followings.
- The auditors were not able to cover the risk of material misstatement assessed by them. For instance, the auditor planned that the cash balance in the financial statement is to be verified with the bank statement. However, due to any reasons, they have not been able to obtain a bank statement and the amount is material. The point to note is that the audit client may have a genuine statement of the same amount. However, auditors have not been able to see and verify the balance. Hence, they disclaim the audit. In other words, they state we do not give any opinion and they write financial statement may or may not be misstated. In simple words, they don’t know if the financial statement prepared by the company is good or not good.
- The audit client is not cooperative and they are not ready to provide reasonable justification for any query. In other words, auditors remain confused and unable to make a conclusion if the figures and events mentioned in the financial statement are truly reflected. For instance, there was massive revaluation. However, management did not have any justification for why this revaluation was made in the financial statement. Hence, it creates a grey area for the audit.
- The control environment of the audit client is not strong and they have not maintained accounting documents or support to verify the balances and transactions in the accounting record. Hence, they are not able to satisfy auditors.
- The intentions of the audit client are not good. In other words, they do not want to provide support/documents to the auditor. Hence, auditors are not able to collect sufficient and appropriate audit evidence to make an opinion on the set of financial statement.
- There is some trust problem between the audit client and the auditor. For instance, the audit client does not share payroll data with the auditor. In this case, auditors may not be able to make any opinion on the balance and if the balance is material and pervasive, it might lead to a disclaimer of opinion given by the auditors.
- Sometimes, it’s just a misunderstanding/miscommunication that might lead auditors to conclude that they have not been able to obtain sufficient and appropriate audit evidence on the assessed risk of material misstatement. In this situation, things can be revised if auditors are satisfied at some time in the future. Further, it should be noted that the disclaimer issued by the auditor is not final, it can be revised to make it a clean audit report.
So, a disclaimer of opinion is made when the auditor is unable to obtain sufficient and appropriate audit evidence because of scope limitations.
Disclaimer of opinion is when the auditor is not able to obtain sufficient and appropriate audit evidence on a set of financial statement. The reason for the inability is that the audit client is not able to satisfy the auditor in terms of documentation and explanations.