Question

Why do some unqualified opinions have explanatory paragraphs?

Answer 1

Ans: Unqualified opinion is expressed in an audit report when the Financial statement of an entity is prepare and presented truly and fairly as per the applicable GAAP and the auditor does not have any reservation on such financial statement. Even though the Auditor have expressed an unqualified opinion, He/ She does want to clarify some assertion which had already been properly disclosed in the financial statement, but according to auditor's judgement it is necessary to bring to the notice user of the financial statement . Some situation where auditor issue explanatory paragraphs are:

i) Early application of GAAP ( Generally accepted accounting policies) which are not mandatory.

ii) Event indicating doubt about entity's Going concern assumption which is met by mitigating factors.

iii) Events occurring  after the balance sheet date.

iv) Report contain audited financial statement and also contains other information which contradict the information contain in the audited financial statement.