Qualified Opinion

What Is a Qualified Opinion?

A qualified opinion is a type of audit opinion in which an independent auditor concludes that a company's financial statements are presented fairly overall, with one exception. The exception is a specific matter the auditor considers significant enough to report, but not so widespread that it undermines the statements as a whole. The report signals this with wording such as "except for," followed by a description of the issue.

Why Auditors Issue One

Auditors typically issue a qualified opinion in two situations. The first is when the financial statements contain a material misstatement in one area, meaning an error or omission that could influence the decisions of investors, and the company does not correct it. The second is a scope limitation, where the auditor could not gather enough evidence about one part of the business, such as a particular account or subsidiary. In both cases the problem is real but contained. If the issue spread across the statements, a stronger type of opinion would be required.

How It Compares to Other Opinions

Audit opinions generally fall into four categories:

• unqualified opinion: the statements are fairly presented in all material respects, with no exceptions. This is the standard result.
• Qualified opinion: the statements are fairly presented except for one specific, contained issue.
• adverse opinion: the statements are not fairly presented, because the problems are pervasive.
• disclaimer of opinion: the auditor could not form an opinion, usually because of a severe scope limitation.

Why It Matters to Investors

A qualified opinion is a warning sign that deserves attention, but it does not automatically mean a company is in serious trouble or that its numbers are fraudulent. Investors usually read the auditor's explanation of the exception to judge how large the problem is and whether it affects the figures they rely on. Because the details appear in the report, the wording matters as much as the label. Investors often compare the issue with other information in the company's filings, such as the notes to the financial statements and management's discussion of results, before drawing conclusions.