We can classify audit reports in number of ways but usually audit reports are

classified n TWO broad categories which are then further classified as follows:
Unmodified audit report
Unmodified report with unmodified opinion
Modified audit report
Unmodified opinion
o Modified report with unqualified opinion AND emphasis of matter paragraph and/or
other matter paragraph
Modified opinion
o Qualified opinion (qualified report)
o Adverse opinion (adverse report)
o Disclaimer of opinion (disclaimer report)
In short there are in total FIVE different types of audit reports that auditor can
issue depending on the circumstances of the audit engagement.
Lets understand each type of audit report in detail
1 Unmodified audit report
When auditor on the basis of examination and the evidence obtained expresses his
opinion that financial statements of the entity are prepared in all material respects in
accordance with applicable financial reporting framework or financial statements give
true and fair view than such audit report or auditors report is called unmodified or
unqualified report. ISA 700 describes the contents and format of the unmodified
report in detail.
2 Modified audit report
Auditors report is said to be modified if the contents of the unmodified report as stated
under ISA 700 are changed:
either because of the addition of emphasis of matter paragraph or other matters
paragraph where opinion is still unmodified (modified report with unmodified opinion)
or because of the modified opinion i.e. (modified report with modified opinion):
o Qualified opinion
o Adverse opinion
o Disclaimer of opinion
It is important to understand that audit report is not always modified because of the
modified opinion. In simple words audit reports with modified opinion are always
modified audit reports but modified audit reports are not always with modified opinion.
2.1 Modified report with unmodified opinion
This is called modified report because the contents of the unmodified report are modified
as additional paragraph(s) is (are) added. Additional paragraphs can be either or both of
the following:
Emphasis of matter paragraph
Other matter paragraph
2.1.1 Emphasis of Matter Paragraph
Auditor includes an emphasis of matter paragraph (EMP) when auditor considers that it
is necessary to draw the attention of users of financial statements to the matter that
is already disclosed or reported in the financial statements and understanding of
the specified matter is important in understanding of the financial statements. EMP
is included after the opinion paragraph in the audit report. However students must be
clear that inclusion of EMP DOES NOT mean that auditors opinion is modified.
2.1.2 Other Matter Paragraph
Auditor includes an other matter paragraph (OMP) when auditor considers that it is
necessary to communicate a matter other than those that are presented or
disclosed in the financial statements and in auditors judgment understanding that
matter is vital for users understanding of the audit, the auditors responsibilities
or the auditors report and this is not prohibited by law or regulation. OMP is included
after opinion paragraph and any EMP in the auditors report or somewhere else in the
auditors report if the content of the Other Matter paragraph is relevant to the Other
Reporting Responsibilities section.
2.2 Modified report with modified opinion
Auditor modify his opinion when he concludes that it will not be appropriate to express
an unmodified/unqualified opinion. Auditor reaches such conclusion when:
The auditor concludes that, based on the audit evidence obtained, the financial
statements as a whole are not free from material misstatement; or
The auditor is unable to obtain sufficient appropriate audit evidence to conclude that
the financial statements as a whole are free from material misstatement.
The modification to the audit opinion is determined by the auditor by applying his
professional judgment on the circumstances at hand. He may modify his opinion to
express a qualified opinion, an adverse opinion or a disclaimer.
2.2.1 Qualified opinion
Audit report containing a qualified opinion is also called qualified report.
Auditor expresses a qualified opinion when:
The auditor, having obtained sufficient appropriate audit evidence, concludes
that misstatements, individually or in the aggregate, are material, but not
pervasive, to the financial statements; or
The auditor is unable to obtain sufficient appropriate audit evidence on which
to base the opinion, but the auditor concludes that the possible effects on the
financial statements of undetected misstatements, if any, could be material but not
pervasive.
2.2.2 Adverse opinion
Audit report containing an adverse opinion is also called adverse report.
The auditor shall express an adverse opinion when the auditor, having obtained
sufficient appropriate audit evidence, concludes that misstatements, individually or
in the aggregate, are both material and pervasive to the financial statements.
2.2.3 Disclaimer
Audit report containing a disclaimer of opinion is also called disclaimer report
The auditor shall disclaim an opinion when the auditor is unable to obtain sufficient
appropriate audit evidence on which to base the opinion, and the auditor concludes
that the possible effects on the financial statements of undetected misstatements, if any,
could be both material and pervasive



Audit Reporting
Audits are conducted to express a true and fair view of a companys financial statements. Therefore, the auditors
opinion expressed in the ultimate report is based on the information reviewed and analyzed during the verification
of financial statements. Upon completing the report, the auditor may express one of the following four opinions:
Unqualified Opinion
Qualified Opinion
Disclaimer of Opinion
Adverse Opinion
Unqualified Opinion
An unqualified opinion is expressed when the auditor concludes that the financial statements give a true and fair
view in accordance with the financial reporting framework used for the preparation and presentation of the
financial statements. It indicates that:
Generally accepted accounting principles are consistently applied in the preparation of financial statements;
Financial statements comply with the relevant statutory requirements and regulations; and
There is adequate disclosure of all material matters relevant to the proper presentation of financial
information (subject to statutory requirements).
Qualified Opinion
A qualified opinion is expressed when the auditor concludes that an unqualified opinion cannot be expressed, but
that the effect of any disagreement with management is not so material and pervasive as to require an adverse
opinion, or the limitation of scope is not so material and pervasive as to require a disclaimer of opinion. A
qualified opinion should be expressed as being subject to or except for the effects of the matter to which the
qualification relates.
Disclaimer of Opinion
A disclaimer of opinion is expressed when the possible effect of a limitation on scope is so material and pervasive
that the auditor has not been able to obtain sufficient appropriate audit evidence and is, therefore, unable to
express an opinion on the financial statements.
Adverse Opinion
An adverse opinion is expressed when the effect of a disagreement is so material and pervasive to the financial
statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading
or incomplete nature of the financial statements.
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