Question

What is an Unqualified/Clean Report? and Qualified Report? Give Examples for each

Answer 1

Unqualified/ Clean Report:- It is a independent auditor's judgement that states a company's financial records and statements fairly and appropriately accepted in accordance of GAAP.It shows that there are no discrepancies in the books of accounts. A clean report increases the goodwill of a business.In addition, an unqualified report is given over the internal controls of an entity if management has claimed responsibility for its establishment and maintenance, and the auditor has performed fieldwork to test its effectiveness.

Example:- Neelikon food dyes and Chemical is a company that manufactured food Colors.The company’s fiscal year has ended and they are currently working on their annual report to present it to its shareholders. This annual report includes last year’s financial statements and these statements must be audited by an independent auditor. After performing his assessment the auditor issued an unqualified opinion about the statements.

Qualified Report:-  If the accounting standards issued by Institute of Chartered Accounts of India is not followed by the company the auditor may qualify his report.It is an report which is not clean.The qualified report is listed in the third position in the audit report, after a statement of management’s responsibilities for preparing the financial statements and maintaining a system of internal controls, and a description of the auditor’s responsibilities.

A qualified report states that the Balance sheet and profit and loss account does not state a true and fair view of affairs.It contains the detail of all the qualifications. It shows that the auditor is not satisfied with the account verified.It also decreases the business's goodwill.

Example:-

XYZ is a publicly traded company. At year-end, Company XYZ hires Auditor ABC to conduct an audit of its financial statements, practices, and controls for the previous fiscal year.Auditor ABC discovers that Company XYZ has not accounted for inventory correctly, has kept incomplete records regarding its cash accounts, and did not provide adequate records for review regarding depreciation. As a result, the auditor would likely give a qualified opinion for Company XYZ due to both limitation of scope (incomplete records) and deviation from GAAP (errors in accounting for inventory).