When An Audit Report Declares an Adverse Opinion

Most financial statements that have been carefully audited usually produce audit reports that state a clean opinion on the company’s financial condition. But on the other end of the tail, the certified public accountant, one who usually performs auditing functions can declare that a company’s financial statements are unreliable and are bound to mislead interested parties such as the company’s investors, stockholders, lenders, its final customers as well as the general public. An audit report that implies a rather negative tone is what is known as adverse opinion. An adverse opinion is an after-audit statement made by an auditor that declares a company’s financial reports to be misleading.

Any business would always want to come clean with their audited financial statements; an adverse opinion is one thing that they would least likely want to hear because it can ruin its credibility and reputation among its interested parties. Certainly, no business would want that to happen. In fact, with the threat of getting an adverse opinion, businesses are motivated to exhaust all means just to avoid an adverse opinion’s kiss of death, giving way to the auditor’s accounting and disclosure procedures. Only auditors are in the position to make an adverse opinion on the company’s financial statement. However, they do not have the authority to make any opinion, whether adverse or not, about the company’s external financial condition without carefully auditing its financial statements. Also, the Securities and Exchange Commission (SEC) does not allow auditors to give adverse opinion of publicly owned businesses, as it might suspend trading operations in their stock share.