The auditor’s opinion represents the ultimate expression of professional judgment in an audit engagement. It conveys whether the financial statements present a true and fair view in accordance with the applicable financial reporting framework. The form, structure, and accuracy of the opinion determine the audit report’s credibility and the stakeholders’ confidence in financial statements.
With enhanced emphasis on quality reporting, peer review, and UDIN validation by ICAI, the responsibility of selecting and drafting the correct auditor’s opinion has become both technical and judgmental. This guidance note provides a structured framework, illustrative language, and practical insights for members to determine the appropriate opinion in conformity with Standards on Auditing (SAs 700, 705, and 706).
Classification of Auditor’s Opinions under SA 700 and SA 705
a) Unmodified (Clean) Opinion
When Applicable:
-
The auditor concludes that the financial statements are free from material misstatement.
-
All applicable Accounting Standards (Ind AS/AS) and the Companies Act, 2013 requirements are duly complied with.
-
No scope limitations or significant uncertainties exist.
Illustrative Language:
“In our opinion, the financial statements give a true and fair view of the state of affairs of the Company as at [date], and of its profit/loss and cash flows for the year then ended, in accordance with the applicable Indian Accounting Standards and the Companies Act, 2013.”
Professional Focus:
Before concluding an unmodified opinion, verify that disclosures are exhaustive, accounting treatments conform to standards, and there are no unadjusted misstatements exceeding materiality thresholds.
b) Unmodified Opinion with Emphasis of Matter (SA 706)
When Applicable:
-
Certain matters (e.g., litigation, going concern uncertainty, or restatement) are appropriately disclosed but require emphasis for user awareness.
-
The disclosure is adequate and does not undermine the overall fairness of the statements.
Illustrative Language:
“We draw attention to Note X of the financial statements regarding uncertainties related to litigation which may affect the financial position. Our opinion is not modified in respect of this matter.”
Professional Focus:
Use the Emphasis of Matter paragraph judiciously. Frequent or unnecessary use may reduce the significance of genuinely important disclosures and impair readability.
c) Qualified Opinion
When Applicable:
-
The auditor identifies material misstatements or scope limitations that are not pervasive.
-
The issue can be either quantifiable (valuation error, revenue recognition, etc.) or non-quantifiable (restricted access to evidence).
Illustrative Language (Quantifiable):
“Except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements give a true and fair view.”
Example of Basis:
“The Company’s inventory has been valued at Rs. X instead of Rs. Y as required under AS 2. This results in an overstatement of profits by Rs. Z.”
Illustrative Language (Non-quantifiable):
“We were unable to obtain sufficient appropriate audit evidence regarding the investment in XYZ Limited due to management-imposed restrictions, and hence cannot determine whether adjustments are necessary.”
Professional Focus:
Wherever feasible, quantify the impact of misstatements. Unquantified qualifications should be strongly justified and supported by documentation, especially for peer review or NFRA scrutiny.
d) Adverse Opinion
When Applicable:
-
The auditor determines that misstatements are both material and pervasive to the financial statements as a whole.
-
The entity’s accounting framework has been fundamentally compromised.
Illustrative Language:
“In our opinion, because of the significance of the matters described in the Basis for Adverse Opinion paragraph, the financial statements do not give a true and fair view of the financial position, financial performance, and cash flows of the Company.”
Examples:
-
Non-consolidation of subsidiaries or associates.
-
Failure to comply with fundamental Ind AS principles.
Professional Focus:
Adverse opinions carry serious implications and should only be issued after conclusive evaluation of pervasiveness and with appropriate partner-level concurrence.
e) Disclaimer of Opinion
When Applicable:
-
The auditor is unable to obtain sufficient appropriate evidence due to pervasive scope limitations or uncertainties.
-
The auditor cannot form an opinion because of extensive non-availability of records or management-imposed restrictions.
Illustrative Language:
“Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraph, we have not obtained sufficient appropriate audit evidence to provide a basis for an audit opinion.”
Examples:
-
Loss of accounting records due to fire or technical failure.
-
Management denial of access to data or premises.
Professional Focus:
A disclaimer should be the last resort after documenting all audit efforts made to obtain evidence. It protects the auditor’s integrity when expressing an opinion is genuinely impossible.
Structuring the Auditor’s Report – Practical Model Framework
| Type of Opinion | Key Circumstances | Essential Clauses | Disclosure Focus |
|---|---|---|---|
| Unmodified | No material misstatements | Opinion + Basis for Opinion | Full compliance with Ind AS/AS |
| Unmodified with EoM | Significant uncertainties disclosed | Opinion + Basis + Emphasis of Matter | Litigation, going concern, prior period adjustments |
| Qualified | Material but not pervasive misstatement | Basis for Qualified Opinion + Opinion | Quantify or describe limitation |
| Adverse | Material and pervasive misstatements | Basis for Adverse Opinion + Opinion | Fundamental non-compliance |
| Disclaimer | Unable to obtain sufficient evidence | Basis for Disclaimer + Disclaimer of Opinion | Pervasive scope limitation |
Drafting Tip:
Under SA 700 (Revised), the “Basis for Opinion” section must immediately precede the “Opinion” paragraph. Cross-references (Note numbers, issue descriptions) must be verified for accuracy.
Best Practice Checklist for Members
-
Apply professional skepticism throughout the audit, ensuring that opinion type aligns with evidence obtained.
-
Document reasoning for opinion selection within audit working papers.
-
Refer to ICAI illustrative formats (2025 edition) for structure and terminology consistency.
-
Quantify the effect of qualifications or misstatements wherever possible.
-
Perform partner-level review before report finalization and UDIN generation.
-
Maintain ethical independence in all opinion determinations, particularly in related-party or management-driven audits.
-
Ensure cross-consistency between the main audit report, CARO reporting, and UDIN records.
Legal and Professional Consequences of Incorrect Opinion
Issuing an inappropriate or unsupported opinion can attract:
-
Regulatory Sanctions: Action under ICAI disciplinary mechanisms or NFRA oversight.
-
UDIN Rejection: Mismatch between declared and reported opinion type.
-
Civil or Criminal Exposure: Under Section 147 of the Companies Act, 2013 for willful misstatement.
-
Reputational Damage: Erosion of stakeholder confidence and firm credibility during peer review.
Members must therefore ensure that every audit opinion is defensible, evidence-backed, and consistent with professional standards.
Conclusion
The auditor’s opinion is not a mechanical statement but a reasoned professional conclusion reflecting diligence, independence, and ethical conduct. The accuracy of the opinion type directly influences the trustworthiness of India’s financial reporting ecosystem. Chartered Accountants must approach opinion selection with structured reasoning, precise documentation, and faithful adherence to SAs.
By ensuring proper classification, drafting precision, and full compliance with ICAI guidance, every auditor upholds the core professional value that defines the audit profession — integrity in assurance.
References and Resources
-
ICAI Guidance Note on Audit Reports (2025)
-
Standard on Auditing (SA) 700 (Revised) – Forming an Opinion and Reporting on Financial Statements
-
Standard on Auditing (SA) 705 (Revised) – Modifications to the Opinion in the Independent Auditor’s Report
-
Standard on Auditing (SA) 706 (Revised) – Emphasis of Matter and Other Matter Paragraphs
-
ICAI e-Guidance Portal: https://www.icai.org
