When it comes to auditing financial statements, qualified opinion is the second-most positive opinion an auditor can provide, just below the unqualified opinion. A qualified opinion is provided when the auditors do not entirely agree with the methods the company uses to prepare its financial statements, though they agree that in spite of these issues, the statements still give a ‘true and fair view’ of the company’s financial performance.

A qualified opinion is a response from an external auditor that the financial statements of the company have been prepared in accordance with the applicable accounting standards, except for a matter or matters referred to in the auditor’s report. The qualified opinion does not state that the financial statements are fairly presented, as with an unqualified opinion. It does imply the financial statements are in compliance with some, but not all, accounting standards. This means that either the auditors were not able to gain a sufficient understanding of matters related to one or more aspects that are expressed in the financial statements, or insufficient evidence was presented to support their accuracy.

A qualified opinion is typically the result of one of three things: Scope Limitation, Accounting Principles/Financial Statement Disclosure

When a Scope Limitation exists, the auditor provides a qualified opinion on the financial statements. This occurs when there has been a restriction on the audit, meaning that some part of the audit should have been completed but the auditor was unable to do so. The limitation may be caused by either a third party (such as a lawyer) or by the company itself, and it must be disclosed in the audit report.

Lastly, when the application of a specific accounting principle or the disclosure of financial information is inadequate or incorrect, the auditor will issue a qualified opinion. This may mean that the company has chosen to record an expense or transaction under an accounting method which, in the audit opinion, is not in accordance with accepted accounting principles or alternatively that the disclosed information is not sufficient from a disclosure point of view.

Overall, a qualified opinion occurs when an auditor finds that an entity’s financial statements are generally accurate and complete, but not completely so. Unlike a disclaimer of opinion and an adverse opinion, a qualified opinion does not indicate any major deviation from accepted accounting and reporting principles and the audit report may still be accepted by lenders, investors, and creditors.