Disclaimer of Opinion
AdvancedA disclaimer of opinion is a statement by an auditor that they cannot express an opinion on a company's financial statements, because they were unable to obtain enough evidence and the possible effects are both material and pervasive.
A disclaimer is not a statement that the accounts are wrong. It means the auditor could not gather enough evidence to say whether they are right or wrong, and the gaps are too significant and widespread to limit the problem to one area.
Disclaimers may arise when key records are missing or destroyed, when management restricts the auditor's access to information or people, or when there are multiple major uncertainties, such as serious doubts about the company's survival combined with other unresolved matters.
For example, if a company's accounting systems were badly damaged and large parts of its transactions could not be verified, the auditor might issue a disclaimer of opinion.
Like an adverse opinion, a disclaimer is a serious warning to investors, lenders and regulators. Listed companies receiving one may face trading suspensions or regulatory action. A disclaimer differs from a qualified opinion, where the lack of evidence affects only a specific, limited part of the statements.
For worked examples and full lessons, visit notesbysara.org.