Adverse Opinion

An adverse opinion is the most severe judgment an auditor can give on financial statements. It means the errors or departures from accounting standards are so significant and widespread that the statements as a whole are misleading.

This differs from a qualified opinion, where a problem is material but limited to a specific area. An adverse opinion indicates that users cannot rely on the financial statements.

For example, an auditor might issue an adverse opinion if a company refuses to consolidate several significant subsidiaries that it controls, so that the group accounts leave out large parts of the business.

Adverse opinions are rare, because companies usually correct problems when auditors raise them, rather than receive such an opinion. For listed companies, an adverse opinion can lead to serious consequences, including action by stock exchanges or regulators, breaches of loan agreements and loss of investor confidence. The auditor's report explains the reasons in a section describing the basis for the adverse opinion.