Understanding the Auditors’ Report
Auditors make sure that the financial statements give a true picture of how a company has performed over the year. The auditors’ report in the financial statements contains their opinion on the financial statements. The opinion is one of the following:
Unqualified (clean): All’s well! The auditors are reasonably happy that the financial statements are free from material mis-statement.
Qualified (unclean): Uh-oh. The auditors aren’t impressed. A qualified opinion (which sometimes follows with the words except for) generally means that the auditors don’t agree with the way you treated something in the financial statements.
If the report shows an adverse opinion, you’re in hot water: the auditors feel that your financial statements don’t show a true and fair view. If the auditors show a disclaimer of opinion, you’re in boiling hot water: circumstances mean that the auditor can’t form an opinion on the financial statements (for example, you’ve lost all the accounting records).
You may also see an Emphasis of Matter paragraph in the report, which flags something in the financial statements that the auditors thinks the user needs to know about.