Definition
A qualified opinion is a modified opinion under AU-C 705. The auditor gives it when misstatements are material but not pervasive, or when the auditor cannot obtain sufficient appropriate evidence and the possible effects are material but not pervasive. The opinion says the statements are fairly presented 'except for' the matter described, and a Basis for Qualified Opinion section explains it.
Why it matters in an audit or review
A qualified opinion tells users that the problem is real but contained. It can breach loan covenants that require an unmodified opinion. Pervasiveness is the judgment line: effects that are not confined to specific elements, or that represent a substantial portion of the statements, push the result to adverse or disclaimer. The report must quantify the effect where practicable.
Example
Illustrative: management refuses to record a $400,000 inventory write-down that exceeds materiality but touches only inventory and cost of sales. The auditor concludes the effect is material but not pervasive and issues an 'except for' opinion that quantifies the overstatement.
Common mistakes
Calling any disagreement 'qualified'. A matter below materiality does not modify the opinion.
FAQ
What if management restricts the audit scope?
A scope restriction can lead to a qualified opinion or disclaimer, depending on whether the possible effects are pervasive.
Sources
- AICPA, AU-C Section 705, Modifications to the Opinion in the Independent Auditor’s Report
- AICPA, AU-C Section 700, Forming an Opinion and Reporting on Financial Statements
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