The condition of issuing a Qualified Report
An auditor’s report provides an opinion on the validity and reliability of a company’s financial statements. It an essential part of a company’s annual report. At the end of every accounting year, the company has to prepare a balance sheet, profit and loss account, cash flow statement, and other related schedules to support the accounts.
Auditors’ issues a qualified opinion on financial statements when there is some limitation on their audit, or when one or more items in the financial statements are not presented in accordance with generally accepted accounting principles. A qualified opinion is expressed as being “subject to” or “except for” the effects of the matter to which the qualification relates. The qualification should clearly indicate the reason for the qualification and the impact of the qualification in profit/losses and also on the financial position of the entry. There are two sets of circumstances under which the audit report should be qualified:
(1) Where the auditor’s work has been subject to a limitation of scope.
(2) Where there is a disagreement with management about:
- Accounting policies,
- Accounting treatment,
- Disclosure in the financial statements.