Question

1.) What causes an auditor’s report to be qualified? adverse? a disclaimer of opinion? unqualified with explanatory language?

2.) Why is the management discussion and analysis useful to the financial analyst?

Answer 1

1)

A qualified opinion states that there are are scope of exceptions or limitation to accounting standards. These are described in a explanatory manner so that analyst can understand the importance.

An adverse opinion states that financial statements are not fairly presented and these statements depart from accounting standards.

Disclaimer of opinion states that auditors for some reason are not able to issue an opinion. This can occur due to a limitation.

Unqualified states that financial statements are fairly presented and give true picture in accordance with accounting standards.

2)

Management discussion and analysis includes several information such as management's objectives and strategies, nature of business, company's major resources and risks, performance measures and operations. The MD&A provides information on effects of inflation and other uncertain events that may cause a deviation in the future form current financial performance of the company. It also provides off balance sheet obligations and contract commitments such as purchase commitments. It also requires company's to disclose accounting policies that require a company to make subjective judgments and have significant impact on the financial statements. The MD&A can be a good starting point for analysts An analyst can start with MD&A to understand financial statements.