What do qualified, adverse and disclaimer opinions in an audit report mean?

The four opinions

"Pervasive" means the effect is not confined to particular items, or is fundamental to understanding the accounts.

Each modified opinion has a Basis for opinion paragraph explaining the matter and, where possible, its amount.

Paragraphs that do not modify the opinion

• Emphasis of matter (SA 706): draws attention to a matter properly disclosed, such as a major litigation or a subsequent event.
• Other matter: explains something relevant to users, for example that a branch or the previous year was audited by another auditor.
• Material uncertainty related to going concern (SA 570): where there is significant doubt that the company can continue, and it is properly disclosed.
• Key audit matters (SA 701): the most significant matters in the audit, reported for listed companies.

What a company should do

1. Read the basis paragraph and quantify the effect.
2. Explain it in the board's report: the board must give its comments on every qualification, reservation or adverse remark (section 134(3)(f)).
3. Check loan covenants: banks often treat a qualification or a disclaimer as an event that needs reporting.
4. Fix the cause before the next year end: missing confirmations, unreconciled balances, unprovided liabilities and weak records are common reasons.

A qualified opinion is usually far less serious than an adverse opinion or a disclaimer, but repeated qualifications draw regulators' and lenders' attention.