What is a Disclaimer of Opinion?

Disclaimer of Opinion

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Disclaimer of Opinion

A Disclaimer of Opinion is a statement made by an auditor declaring that they were unable to complete an accurate audit report on a company’s finances. This typically occurs when the company being audited does not provide sufficient evidence or data to support their financial statements, or when there’s a significant limitation on the scope of the auditor’s work that prevents the auditor from collecting enough evidence.

In such cases, the auditor can’t form an opinion on the financial statements and issues a disclaimer of opinion, stating that they cannot confirm whether the financial statements are a fair and accurate representation of the company’s financial position.

It’s important to note that a disclaimer of opinion is not an adverse opinion. An adverse opinion is issued when an auditor believes the financial statements materially misrepresent the company’s financial position, while a disclaimer of opinion is issued when the auditor simply cannot form an opinion due to lack of information or restrictions on their work.

When a company receives a disclaimer of opinion, it can raise red flags for investors, creditors, and other stakeholders because it suggests there may be underlying issues preventing a clear audit, such as potential mismanagement or lack of transparency.

Example of a Disclaimer of Opinion

Here’s a simplified example of a Disclaimer of Opinion:

ABC Auditing Firm
Independent Auditor’s Report

To the Shareholders of XYZ Company,

We have been engaged to audit the accompanying financial statements of XYZ Company, which comprise the balance sheet as at December 31, 2023, and the income statement, statement of changes in equity, and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Disclaimer of Opinion

We were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements due to significant limitations on the scope of our audit. Specifically, XYZ Company was unable to provide us with complete records pertaining to their inventory and accounts receivable balances as of December 31, 2023.

Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial statements.

Basis for Disclaimer of Opinion

XYZ Company did not maintain proper records of inventory and there were significant discrepancies and omissions in the accounts receivable ledger. These conditions prevented us from conducting a complete and satisfactory audit of the Company’s financial statements.

Emphasis of Matter

We draw attention to Note 2 to the financial statements, which describes the issue mentioned above. Our opinion is not modified in respect of this matter.

Other Matters

The comparative financial information of XYZ Company for the year ended December 31, 2022, was audited by another auditor who expressed an unmodified opinion on those statements on March 1, 2023.

ABC Auditing Firm

Please note, this is a simplified example and real audit reports would be significantly more detailed. In the event of a disclaimer of opinion, the company should work to address the issues that led to the disclaimer and ideally resolve them by the time of the next audit.

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