A clean opinion, also known as an unqualified opinion, is an independent auditor’s judgment that a company’s financial statements are fairly presented, in all material respects, in accordance with the applicable financial reporting framework (such as Generally Accepted Accounting Principles or International Financial Reporting Standards). In other words, a clean opinion indicates that the auditor found no significant issues or misrepresentations in the financial statements and that they provide an accurate and reliable representation of the company’s financial position, results of operations, and cash flows.
A clean opinion is the most favorable opinion an auditor can provide and is highly sought after by companies, as it enhances the credibility of their financial statements and helps maintain the confidence of investors, creditors, and other stakeholders.
To arrive at a clean opinion, the auditor must conduct a thorough examination of the company’s financial records, internal controls, and accounting practices, as well as gather sufficient, appropriate audit evidence to support their opinion. If the auditor encounters any material misstatements, significant deficiencies in internal controls, or other issues that could affect the reliability of the financial statements, they may issue a qualified opinion, adverse opinion, or disclaimer of opinion, depending on the nature and extent of the issues identified.
Example of a Clean Opinion
Let’s assume we have a fictional company, “HealthyFood Inc.” The company has hired an independent auditor to review its financial statements for the fiscal year ended December 31, 2023. After conducting a thorough audit, the auditor concludes that HealthyFood Inc.’s financial statements are fairly presented, in all material respects, in accordance with Generally Accepted Accounting Principles (GAAP).
The auditor’s report, which includes the clean opinion, might look something like this:
Independent Auditor’s Report
To the Shareholders and Board of Directors of HealthyFood Inc.:
We have audited the accompanying financial statements of HealthyFood Inc. (the “Company”), which comprise the balance sheet as of December 31, 2023, the income statement, statement of shareholders’ equity, and statement of cash flows for the year then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HealthyFood Inc. 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.
[Signature of the auditing firm]
[Name of the auditing firm]
[Date of the auditor’s report]
[City and State where the auditor’s report is issued]
In this example, the clean opinion provided by the auditor indicates that they found no significant issues or misrepresentations in HealthyFood Inc.’s financial statements, and the statements accurately represent the company’s financial position, results of operations, and cash flows. This clean opinion can help enhance the credibility of HealthyFood Inc.’s financial statements and maintain the confidence of investors, creditors, and other stakeholders.