What does “Except for Opinion” mean?

Except for Opinion

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“Except for Opinion”

“Except for opinion” refers to a type of qualification in an auditor’s report, also known as a qualified opinion. A qualified opinion suggests that, in general, the financial statements of a company are a fair representation of its financial position, except for a specific issue that is described in the report.

Auditors issue an “except for” opinion when they encounter a situation where:

  • The audit scope is limited, i.e., the auditor couldn’t complete an aspect of their audit due to conditions such as lack of available data or refusal of management to provide information.
  • There’s a disagreement with management regarding the application, acceptability, or adequacy of accounting policies.

In an “except for” opinion, the auditor will clearly state that the financial statements are fairly presented “except for” the effects of the matter to which the qualification relates.

For example, suppose a company has a significant investment in a foreign subsidiary, and the auditor was unable to verify the reported values due to restrictions on foreign exchange. The auditor might issue an opinion stating that the financial statements fairly present the financial condition of the company, except for the possible effects of the inability to verify the value of the foreign investment.

It’s worth noting that a qualified “except for” opinion is not as severe as an adverse opinion (where the auditor believes the financial statements as a whole are not in conformity with GAAP) or a disclaimer of opinion (where the auditor isn’t able to form an opinion on the fairness of the financial statements). However, any form of qualification can be a red flag to investors, creditors, or other users of the financial statements.

Example of “Except for Opinion”

Here’s an example of how an “Except for” qualified opinion might appear in an audit report:

We have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 2023, and the related statements of income, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes to the financial statements.

In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended in accordance with U.S. generally accepted accounting principles.

Basis for Qualified Opinion

ABC Company has a subsidiary in Country XYZ. Country XYZ has imposed currency restrictions making it impractical for us to determine the fair value of ABC Company’s investment in its subsidiary. Accordingly, we were not able to obtain sufficient appropriate audit evidence about the subsidiary’s financial statements through other auditing procedures. The investment in the subsidiary represents a material portion of ABC Company’s total assets as of December 31, 2023.

In this example, the audit firm states that they were unable to obtain enough information about the subsidiary to verify its value due to country-imposed currency restrictions. Because this investment represents a significant part of ABC Company’s assets, the audit firm issued a qualified opinion stating that, except for the possible effects of this issue, the financial statements are fairly presented.

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