Types of Modification and Qualification in Audit

Audit Assignment
Explain the different types of modification and qualification (in Audit).
Modified opinion can be said to the opinion of the auditor that are issued to the financial
statements when the statements are not prepared in tune to the framework of accounting that
are being used. There are three types of modification as prescribed by IAS 705.
Unqualified Opinion
This opinion is a clean opinion meaning that the report indicates that the financial record is
free from any type of misinterpretations. Further, it indicates that the financial records has
been prepared as per the regulations that is GAAP. It is the best report that the business can
receive. An unqualified report comprise of the title that is named as independent meaning
that the audit is done by a third party who have an unbiased nature. This opinion even
indicate the premise that all accounting policies has been duly adhered to and the financial
statement projects a true and fair view. Secondly, the financial statements adhere with the
legal regulations. Lastly, it denotes that all material facts has been disclosed and there is a
proper presentation of the financial information.
Qualified Opinion
It can be stated as the initial audit opinion where auditors derive at the conclusion by testing
about the material misstatement in the financial statements but those misstatements are not
pervasive in nature. Such misstatement cannot be termed as pervasive to financial statements
if the misstatement does not impact the financial statements and the ability of decision
making. One of the prime reason for the qualification of the audit report is that there are
major concerns in respect to the going concern issue and such problem persists in the
financial statements. This opinion alert the user of the financial statement that the financial
information have high level of doubt. In short, such an opinion is provided when the auditor
finds high level of doubt in the financial statements and aware the users through this opinion.
For instance, if there is a qualified opinion owing to the inventories then the auditor will
provide a qualified opinion to this regard. For instance, auditor will provide a qualified
opinion when stock amounting to USD 2,00,000 does not appear in the statement.
Adverse opinion
The adverse opinion is issued where the auditors come to the conclusion after an evaluation
that the financial statements are misstated and pervasive in nature. Adverse opinion is serious
in nature and is a warning by the auditors that the user should not rely on the financial
statements in their process of decision making. It is the worst type of financial report and
project that the business is shadowed with immense risk. Further, the financial statements that
are provided by the business has been misinterpreted. This might happen due to an error but it
indicates a type of fraud. If such a report is issued then it is the duty of the business to het the
statements re-audited as the interested parties will not accept it.
For instance, the auditor reflected that the stock amounting to USD 200,000 does not exist
and the overall sales does not happen.