In some situations, the auditor is unable to issue an unmodified opinion. If they do not have sufficient appropriate audit evidence to assess whether the financial statements present a true and fair view, they may issue a disclaimer of opinion.
A disclaimer of opinion typically arises when limitations during the audit are so significant and pervasive that the auditor cannot obtain the necessary audit evidence. A common example is when the auditor does not have access to key accounting records, the company’s records are incomplete, or accounting data has been lost. In such cases, it is not possible to reliably verify certain significant items in the financial statements.
Another reason may be a limitation of the scope of the audit imposed by the entity. If management does not allow the auditor to perform necessary audit procedures – such as inventory counts, receivables confirmations, or access to important contracts – the auditor may be forced to disclaim an opinion.
A disclaimer may also occur when there are multiple significant uncertainties that the auditor cannot evaluate. These may include uncertainties regarding the entity’s ability to continue as a going concern, ongoing litigation, or other significant events whose impact on the financial statements cannot be reliably assessed.
Conclusion
It is important to emphasize that a disclaimer of opinion does not necessarily mean that the financial statements are incorrect. It simply means that the auditor did not have sufficient information to issue an unmodified opinion. However, for users of financial statements, this represents an important warning signal that the reliability of the presented financial information cannot be independently confirmed.
An auditor most commonly issues a disclaimer of opinion in the following cases:
- Lack of access to accounting records, contracts, and other audit evidence
- Incomplete accounting records
- Loss of accounting data
- Management does not allow necessary audit procedures (e.g., inventory counts, confirmations)
- Uncertainties regarding going concern
- Extensive legal disputes
- Failure to provide written representations
The auditor’s procedure for issuing a disclaimer of opinion is governed by International Standard on Auditing ISA 705 (Revised) – Modifications to the Opinion in the Independent Auditor’s Report.
