How a qualified opinion is given
Under SEC rules, public companies must provide audited, GAAP-compliant financial statements. You can find the report from the auditor near the end of the company's annual report or 10-K filing. The auditor opinion -- whether unqualified, qualified, adverse, or disclaimed -- is part of that report.
A report with a qualified opinion will often include these components:
- Report title: This might state, "Report of Independent Registered Public Accounting Firm."
- The auditor's report is usually addressed to shareholders and company directors.
- Scope statement: Here, the auditor defines what the report covers. The statement often begins with, "We have audited ..." and then lists specific financial statements and timeframes covered by the audit.
- Basis for qualified opinion: This section explains the GAAP departure or scope limitation that led to the qualified opinion.
- A qualified opinion will communicate that the financial statements represent the company's position fairly except for the issues explained in the basis for qualified opinion.
- Critical audit matters: The report may also provide more detail on complex or significant accounting issues. The purpose of this section is to explain how the auditor handled them. As an example, the unqualified auditor statement in Southwest Airlines' (LUV -5.51%) 2020 annual report identifies and defines two critical matters: non-redeemed Rapid Rewards points and the valuation of derivative financial instruments.
