By Joshua Corcuera
Recently, the Commission on Audit (COA) has been reported frequently by the media due to the irregularities it found in several government agencies. From ‘overpriced’ laptops involving the Department of Education (DepEd) to ‘unauthorized’ high-yield investments of the Department of Budget and Management (DBM), COA has been doing its constitutional mandate to safeguard public assets. Likewise, COA has issued annual audit reports as to the fairness of the financial statements of government agencies. As the media reported, many received qualified opinions while some received an unqualified opinion. But what are the types of audit opinions? What are the implications of such? And why is an audit essential?
There are two broad categories for audit opinions: (1) unmodified and (2) modified. The latter can be further divided into three: (1) qualified, (2) adverse, and (3) disclaimer of opinion. All in all, there are four types of audit opinions that an auditor can issue upon completion of the audit. Furthermore, the unmodified opinion is often interchanged with the term unqualified opinion. Of the four types of audit opinions, an unqualified opinion is considered the most ideal or the best report an audit client can receive. Such opinion provides high or reasonable (but not absolute) assurance that the financial statements are free from material misstatements whether due to fraud or error.
On the other hand, a qualified opinion is sometimes called the ‘except for’ opinion. This is because a qualified opinion also found that the financial statements are reasonably free from material misstatements with the exception of certain items. In other words, a qualified opinion means that there is a material, but not pervasive, misstatement.
While a qualified opinion is less ideal compared to an unqualified one, an adverse opinion and disclaimer of opinion are opinions that are much more avoided by audit clients. An adverse opinion is issued when there are material misstatements, just like a qualified opinion. The difference, however, is that such misstatements are also pervasive and, as a result, the financial statements are not free from material misstatements. A disclaimer of opinion is issued when there is a material and pervasive scope limitation which means the auditor failed to accumulate sufficient and appropriate audit evidence due to various reasons such as management-imposed limitations, the nature and timing of the audit, and/or reasons beyond the control of the auditor.
All in all, an unqualified opinion is aspired by audit clients, not only in government but also private corporations, as this expresses that the financial statements are reasonably free from material misstatements and, thus, improves the credibility of such. Implicitly, the audit client appears to be trustworthy and credible in the eyes of the public.
So, with all of this technical knowledge, why is an audit essential? The reason an audit is essential is obvious: it helps users of financial statements to decide whether or not to trust such statements. Incidentally, fraud, error, and non-compliance may be reported by auditors in particular cases. In the case of COA, red flags have been raised in questionable transactions involving the government as proven by the recent issue on overpriced DepEd laptops which caused the former Education Secretary Briones to be questioned before the Senate.
The author is a fourth-year accountancy student and all information provided has no guarantee of absolute accuracy, completeness, and timeliness. Due to technicalities involved, there may or may not be omissions in the article. Hence, for comments and reactions, do not hesitate to contact the author through his email: firstname.lastname@example.org