Definition
A disclaimer of opinion appears under AU-C 705 when the auditor cannot obtain sufficient appropriate audit evidence on which to base an opinion and concludes that the possible effects of undetected misstatements could be both material and pervasive. The report says the auditor does not express an opinion and includes a Basis for Disclaimer of Opinion section. It also omits the usual statement on the audit being a basis for an opinion.
Why it matters in an audit or review
A disclaimer is a scope failure, not a finding of error. Common causes include management refusing access to records, destroyed accounting records, or multiple uncertainties that interact. If management imposes a limitation before acceptance and the auditor expects it would lead to a disclaimer, AU-C 210 does not allow accepting the engagement as an audit unless law requires it.
Example
Illustrative: a fire destroys the entity's sales and inventory records, and no alternative evidence exists for revenue, receivables, or inventory. The auditor concludes the possible effects are pervasive and disclaims an opinion.
Common mistakes
Disclaiming when alternative procedures could have worked.
FAQ
Is a disclaimer better than an adverse opinion?
Neither is favorable. They answer different problems: no evidence versus evidence of pervasive misstatement.
Sources
- AICPA, AU-C Section 705, Modifications to the Opinion in the Independent Auditor's Report (disclaimer of opinion, basis for disclaimer)
- AICPA, AU-C Section 210, Terms of Engagement (limitations on scope imposed before acceptance)
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error