Disclaimer Of Opinion Report

Business, Legal & Accounting Glossary

Definition: Disclaimer Of Opinion Report



Full Definition of Disclaimer Of Opinion Report


A Disclaimer of Opinion, commonly referred to simply as a Disclaimer, is issued when the auditor could not form, and consequently refuses to present, an opinion on the financial statements. This type of report is issued when the auditor tried to audit an entity but could not complete the work due to various reasons and does not issue an opinion. The disclaimer of opinion report can be traced back to 1949, when the Statement on Auditing Procedure No. 23: Recommendation Made To Clarify Accountant’s Representations When Opinion Is Not Expressed was published in order to provide guidance to auditors in presenting a disclaimer.

Statements on Auditing Standards (SAS) provide certain situations where a disclaimer of opinion may be appropriate:

  • A lack of independence, or material conflict(s) of interest, exist between the auditor and the auditee (SAS No. 26)
  • There are significant scope limitations, whether intentional or not, which hinder the auditor’s work in obtaining evidence and performing procedures (SAS No. 58);
  • There is substantial doubt about the auditee’s ability to continue as a going concern or, in other words, continue operating (SAS No. 59)
  • There are significant uncertainties within the auditee (SAS No. 79).

Although this type of opinion is rarely used, the most common examples where disclaimers are issued include audits where the auditee willfully hides or refuses to provide evidence and information to the auditor in significant areas of the financial statements, where the auditee is facing significant legal and litigation issues in which the outcome is uncertain (usually government investigations), and where the auditee has going concern issues (the auditee may not continue operating in the near future). Investors, lending institutions, and governments typically reject an auditee’s financial statements if the auditor disclaimed an opinion, and will request the auditee to correct the situations the auditor mentioned and obtain another audit report.

A disclaimer of opinion differs substantially from the rest of the auditor’s reports because it provides very little information regarding the audit itself, and includes an explanatory paragraph stating the reasons for the disclaimer. Although the report still contains the letterhead, the auditee’s name and address, the auditor’s signature and address, and the report’s issuance date, every other paragraph is modified extensively, and the scope paragraph is entirely omitted since the auditor is basically stating that an audit could not be realized.

In the introductory paragraph, the first phrase changes from “We have audited” to “We were engaged to audit” in order to let the user know that the auditee commissioned an audit, but does not mention that the auditor necessarily completed the audit. Additionally, since the audit was not completely and/or adequately performed, the auditor refuses to accept any responsibility by omitting the last sentence of the paragraph. The scope paragraph is omitted in its entirety since, effectively, no audit was performed. Similar to the qualified and the adverse opinions, the auditor must briefly discuss the situations for the disclaimer in an explanatory paragraph. Finally, the opinion paragraph changes completely, stating that an opinion could not be formed and is not expressed because of the situations mentioned in the previous paragraphs.

The following is a draft of the three main paragraphs of a disclaimer of opinion because of inadequate accounting records of an auditee, which is considered a significant scope of limitation:

We were engaged to audit the accompanying balance sheet of ABC Company, Inc. (the “Company”) as of December 31, 20XX and the related statements of income and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management.

The Company does not maintain adequate accounting records to provide sufficient information for the preparation of the basic financial statements. The Company’s accounting records do not constitute a double-entry system which can produce financial statements.

Because of the significance of the matters discussed in the preceding paragraphs, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion of the financial statements referred to in the first paragraph.


Cite Term


To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
https://payrollheaven.com/define/disclaimer-of-opinion-report/
Modern Language Association (MLA):
Disclaimer Of Opinion Report. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. July 04, 2020 https://payrollheaven.com/define/disclaimer-of-opinion-report/.
Chicago Manual of Style (CMS):
Disclaimer Of Opinion Report. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/disclaimer-of-opinion-report/ (accessed: July 04, 2020).
American Psychological Association (APA):
Disclaimer Of Opinion Report. PayrollHeaven.com. Retrieved July 04, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/disclaimer-of-opinion-report/

Definition Sources


Definitions for Disclaimer Of Opinion Report are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 20th April, 2020 | 2 Views.