Definition:
An unqualified opinion is an opinion which the auditors (Also see Characteristics of an Excellent Auditor) will give to their clients after performing the testing on the audited financial statements. If an auditor provides an unqualified opinion, it means that there is no material misstatement and the client has prepared and presented those statements by complying with all the relevant financial reporting standards or frameworks and following the appropriate requirements.
The auditors will normally attach the opinion statement to the audit report that they have issued to their clients after they have finished their testing and are happy with the outcomes.
Also, this implies that the auditors have acquired all the essential audit evidence which they require to support their opinion.
In some cases, the auditors may discover that a material misstatement is present in the financial statements. If the misstatement is not pervasive to any other parts, the auditors may issue a qualified opinion to their client.
This indicates that the auditors did not discover any issue in the financial statements, except the part that they stated.
Explanation:
The law may require some organisations to engage an independent audit firm in Johor Bahru to audit their financial statements before submitting the audited reports to the related government department yearly.
Another possible situation is that it is part of an entity’s risk management, and it willingly asked for auditors to evaluate its financial statements. The board of directors, the shareholders, or the owners may want to audit the financial statements of their organisation every year.
Usually, a company will have the audit every year or every three months, depending on the requirement of regulation or management.
Preparing financial statements (Also see Which is the Most Important Financial Statement?) is not the responsibility of the auditor. Instead, they need to review the financial statements and their supporting documents that the management of an entity has prepared, then express their opinions fairly.
The supporting documents include sales invoices, purchase invoices, sales recordings, assets recordings, purchase recordings, contracts, as well as other supporting documents which provide evidence to the financial events and transactions that the entity has stated in its financial statements within the audit period.
Once the auditors have confirmed that those documents support the financial statements after testing, they highly believe that the statements do not contain material misstatements from any reason. Thus, they should issue an unqualified audit opinion.
The Responsibilities of the Management and the Auditor:
The management of a company is responsible for the preparation of financial statements based on the applicable accounting standards, and they should also comply with relevant law.
The management should also ensure that there is no material misstatement in the financial statements which could be caused by fraud or errors. (Also see Audit Procedures That Helps in Detecting Fraud)
If the management wishes to make sure that there are no risks of making misstatements due to fraud or errors, they should establish robust internal control over financial reporting as well as equip their company with adequate employees.
Another responsibility of the management is to provide all relevant supporting documents and records which provide evidence to the financial events or transactions in the financial statements that the auditors request. During audit engagement, the management should also support the auditors in performing their job.
As for the auditors, as soon as they have accomplished their review, they should issue audit opinions according to testing’s result. Auditors have to provide their opinions objectively without being biased to any side.
Throughout the audit, according to auditing standards, auditors need to determine risks (Also see Types of Audit Risks and Their Sources) of misstatements that could have occurred or are occurring due to fraud. Yet, it is not their main responsibility to detect and investigate fraud. Instead, this is what the management should do.