The Differences of Qualified & Unqualified in an Audit

Many organisations are required by law or by policy to hire an accountant to produce a periodic audit of the organisation’s financial statements. Auditors affix qualifications or warnings to an audit report that exposes defects within the organisation’s financial systems. This qualification serves as a protection to the auditor in that the auditor’s opinion of the organisation’s fiscal policies is subject to the qualifed item being corrected.

Unqualified Audit Report

An unqualified audit report demonstrates that the audited entity appears to be in compliance with accepted accounting practices. An auditor writes this opinion after reviewing the financial statements and concluding that the evidence points to the organisation’s compliance with these practices. An audit that results in an unqualified audit report is commonly referred to as a clean audit.

Qualified Audit

The qualified audit indicates that there are areas of concern in the presentation of financial data that may need to be addressed by an organisation’s management. These areas may be minor in scope. They should, however, be addressed as soon as possible to prevent abuse. In fact, a qualified finding may actually provide the road map to those who would commit malfeasance if any underlying practice of concern is not addressed.

Standards

A set of rules known as the General Accepted Accounting Principles (GAAP) are commonly deployed as the standard that is used to decide if an action is considered an accepted practice. A policy that fails to meet GAAP criteria is subject to being flagged in a qualification. Polices that are found to be in compliance with GAAP could be said to be best practices.

Outcomes

An audit report that does not contain qualification is a positive affirmation of organisation management. An unqualified audit may assist the organisation in securing future loans or attracting new investors. A qualified outcome may also have specific ramifications depending on an organisation’s legal status. For instance, a qualified audit of a government entity may have future political ramifications for the elected official that heads up the entity.

Clarification

A qualified audit report should not be confused with an adverse opinion. An adverse opinion finding represents a more stringent negative finding than does a qualified audit report.

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About the Author

Max Power started writing in 1996. Power was responsible for providing coverage of local and state governmental affairs for a web-boom-era news and civic-affairs news website. This experience provided him with a range of in-depth knowledge about legal, civic, political and governmental affairs. Power holds a Bachelor of Arts degree with a concentration in history.

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