The audit opinion is that part of the auditor's report to the members of an entity in which the auditor expresses an opinion on the extent to which the financial statements are materially misstated. The fact that it is an opinion, and not a certification, is meant to indicate to financial statement users that the auditor is providing reasonable assurance, and not complete assurance, as to whether or not the financial statements are materially misstated.
Where the auditor is satisfied that the financial statements fairly present the financial position and results of the entity, the auditor issues what is referred to as an unqualified audit opinion. An unqualified audit opinion, or a "clean" opinion, is one without any restricting or limiting circumstance. Thus, an unqualified audit opinion begins with the words:
"In my opinion, the financial statements present fairly the financial position of (name of entity) as at June 30, 200X and the results of its operations and its cash flows for the year then ended."
Where the auditor is not satisfied that the financial statements fairly present the financial position and results of the entity, or that they are not consistent with the auditor's knowledge of the business, in other words, where the auditor believes that the financial statements contain a material misstatement, the auditor issues either a qualified audit opinion or an adverse opinion.
Where the auditor believes that the financial position is true and fair "except for" a particlar matter, the auditor issues a qualified audit opinion that identifies a restriction or limitation to the auditor's opinion. For example:
"In my opinion, except for the effects on the financial report of the matters referred to in my report above, the financial statements present fairly the financial position of (name of entity) as at June 30, 200X and the results of its operations and its cash flows for the year then ended."
If the nature and materiality of the misstatement(s) is such that the auditor believes the financial statements cannot provide a true and fair view, even with a qualification, the auditor issues an adverse opinion. In this case, the audit opinion states that ".. the financial statements do not present fairly the financial position ...".
However, if the auditor is unable to gather sufficient appropriate evidence to form an opinion, the auditor provides what is referred to as an inability opinion.
In this instance, the audit report states that "I am unable to and do not express an opinion as to whether the financial statements present fairly the financial position ...".
Auditors are aware that some auditees engage in opinion shopping, i.e. seeking out an auditor that will provide the auditee with an unqualified opinion or perhaps an opinion that is less modified or qualified than the opinion provided by the auditee's existing auditor.