The Companies and Allied Matters Act (CAMA) of 1990 and the Fourth Standard of reporting provide that an auditor should report on the financial statements under examination to show if those statements present a true and fair view of the financial position of the firm. If the firm’s financial statements do not present a true and fair view, the auditor should qualify his reports.
The Companies and Allied Matters Act of 1990 requires auditors to issue an opinion covering the following areas.

  1. The balance sheet of the company; 
  2.  The profit and loss account; 
  3. The statement of sources and application of funds; 
  4.  The holding companies (in the case of group accounts); 
  5. Other accounts as required by the Act such as: the disclosure of certain information relating to loans to directors and officers, directors’ emoluments, pensions, and compensation for loss of office. 

The American Institute of Certified Public Accountants, in the codification of auditing statements under the standard of report, states the fourth standard of reporting, thus:

The report shall state the expression of opinion regarding the financial statements, taken as a whole. When an overall opinion cannot be expressed, the reasons, therefore, should be stated and the report shall contain a clear-cut indication of the auditor’s examination and the responsibility he is taking. In this unit, therefore, we shall consider the following: overview of auditors’ reports relative to the relevant legislation and auditing standards; types of auditor’s opinions and reports; qualifications in audit reports; reasons for qualification in audit reports.


At the end of this unit, you should be able to:

  1. outline an overview of auditor’s reports 
  2. explain the types of auditor’s opinions and reports 
  3. highlight the statement of accounting standards on qualifications in audit reports 
  4. explain reasons for qualifying audit reports 
  5. describe the assertions in a standard auditor’s report. 


3.1 Overview of Auditor’s Report

Let us make an overview of auditor’s reports, bearing in mind the provisions of the relevant legislations as well as the Statement of Auditing Standards, as follows.

  1. The auditing standard applies to all reports in which the auditor expresses an opinion on financial statements intended to give a true and fair view of the state of affairs, profit and loss, and where applicable, source and application of funds. The standard is not intended to override the statutory exemptions granted in respect of certain types of enterprises, but it is intended to apply to the audit reports relating to such enterprises in other respects; 
  2.  The audit report should identify to whom it is addressed and the financial statements to which the report relates; 
  3. The auditor should refer expressly in his report to the following: (i) whether the financial statements have been audited in accordance with approved auditing standards; (ii) whether in the auditor’s opinion, the financial statements give a true and fair view of the state of affairs, profit and loss, and where applicable, source and application of funds; (iii) any matter prescribed by the relevant legislations or other requirements; 
  4. When expressing an opinion that the financial statements give a true and fair view, the auditor should be satisfied among other things: (i) that all relevant statements of standard accounting practices have been complied with except in situations in which for justifiable reasons, they are not strictly applicable, because they are impracticable or exceptional, having regard to the circumstances, would be inappropriate or give a misleading view; and (ii) that any significant accounting policies which are not the subjects of statements of standard accounting practices are appropriate to the circumstances of the business; 
  5. The auditor should refer in his report to the particular accounting convention used in preparing the financial statements, such as historical cost convention, etc., in order to avoid misunderstanding; 
  6. Emphasis of matter. As a general principle, the auditor issuing an unqualified opinion should not make reference to specific aspects of the financial statements in the body of his reports as such reference may be misconstrued as being a qualification. In order to avoid giving the impression that a qualification is intended, references which are regarded as emphasis of matter should be contained in a separate paragraph and introduced with a phrase such as: i. we draw attention to … ii. and should not be referred to in the opinion paragraph. Emphasis of matter should not be used to rectify a lack of appropriate disclosure in the financial statements nor should it be regarded as a substitute for a qualification. 
  7. The auditor should comply with any reporting requirement imposed by legislation and any other reporting requirement relevant to the financial statement. Note that the auditor is only required to include reference to the accounting convention if he considers it necessary to avoid misunderstanding 

3.2 Types of Auditor’s Opinions and Reports

3.2.1 Unqualified Opinion/Report
This is also known as “clean” report. It is referred to as such because the auditor is able to report affirmatively (positively) on the statements prepared. It speaks to conformity with the Generally Accepted Accounting Principles (GAAP), consistent application of accounting principles and includes all informative disclosures.
Unqualified report cannot be issued when the internal control is very weak, and where there is restriction on the scope of the auditor’s work. Below is an example of unqualified report:

We have examined the financial statements set out on pages …… to .…… and have obtained all necessary information and

explanations which we considered necessary. Proper books have been kept and proper returns received from the branches, and

the financial statements, which are in agreement therewith, comply with the requirements of the Companies and Allied Act of 1990.

To the best of our knowledge and belief, the Group complied with the guidelines of the Productivity, Prices and Incomes Board during the year ended …………., 20……

In our opinion, the financial statements give a true and fair view of the state of the financial position of the Company and the Group as at ……….., 20….., and of the Profit and Loss Accounts, the Balance Sheet and the Sources and Application of Funds of the Group for the year ended on that date.”

Note that the auditor’s report has two sections, they are as follows. (a) The scope section/paragraph – explains the financial statements examined and the application of Generally Accepted Auditing
Standards (GAAS) in performing the audit;

(b) The opinion paragraph – deals with the auditor’s professional view concerning the results of the audit work.

3.2.2 Qualified Opinion

This type of report lacks sufficient competent evidential matter to support an opinion. It has restrictions on the scope of the audit, and the auditor believes that:

  1. there is material departure from GAAP; 
  2.  there is lack of consistency; 
  3.  there are significant uncertainties. 

In this situation, the auditor must disclose the reasons and possible effects of his qualification. The auditor should use the words “except”, “exception” or “subject to” in the opinion paragraph.

3.2.3 Adverse Opinion

Adverse opinion is issued by an auditor when exception is so material to warrant justification. The financial statements, as a whole, do not present fairly the true financial position of the company. Thus, adverse opinion is issued when qualified opinion cannot be justified, and the auditor must disclose substantive reasons and the principal effects on the overall financial statements.

3.2.4 Disclaimer Opinion

If an auditor does not have enough evidence to form an opinion, he must state so in his report and disclaims an opinion. A disclaimer can result either because the scope of the auditor’s examination was seriously limited or due to some unpredictable uncertainties.

Therefore, for an auditor to disclaim an opinion, there must be serious scope limitation or unusual uncertainties, and the financial statements revealed material departures from the GAAP.


List and explain the types of auditor’s opinions and reports.

3.3 Qualification in Audit Reports

We shall consider this in relation to the stipulations in the Statement of Auditing Standards.

  1. When the auditor is unable to report affirmatively on the relevant matters, he should qualify his report by referring to all material matters about which he has reservations. All reasons for the qualification should be given together with a qualification of its effect on the financial statements, if this is both relevant and practicable. Also, reference may need to be made to non- compliance with legislation and other requirements. 
  2.  A qualified report should leave the reader in no doubt as to the meaning and implications for an understanding of the financial statements. 
  3. The nature of the circumstances giving rise to a qualification of opinion will generally fall into one of two main categories: (i) where there is an uncertainty which prevents the auditor from forming an opinion on a matter, or (ii) where the auditor is able to form an opinion on the matter giving rise to the qualification, but this conflicts with the view given by the financial statements (disagreement). 
  4.  The forms of qualification which should be used in different circumstances are shown below (courtesy of Recommendation of Auditing Practices Committee on Qualification in Audit Reports): Nature of Material but not Fundamental Circumstances fundamental Uncertainty “Subject to” opinion Disclaimer of opinion 

Disagreement “Except” opinion Adverse opinion Note our discussion on the types of auditor’s opinion and reports (3.2 above). Each of the above categories gives rise to alternative forms of qualification, depending upon whether the subject of the uncertainty or disagreement is considered to be fundamental so as to undermine the view given by the financial statements taken as a whole. Disclaimer of opinion: the auditor states that he is unable to form an opinion as to whether the financial statements give a true and fair view.

“Subject to” opinion: the auditor effectively disclaims an opinion on a particular matter which is not considered fundamental. Adverse opinion: the auditor states that in his own opinion, the financial statements do not give a true and fair view. “Except” opinion: the auditor expresses an adverse opinion on a particular matter which is not considered fundamental.

3.4 Reasons for Qualification in Audit Reports

The reasons for qualification can be obtained as follows:

(a) Uncertainties

Limitation in the scope of the audit: this arises if the auditor is unable to obtain all the information and explanations which he considers necessary for the purpose of the audit, for example,
absence of proper accounting records;

(ii) Inherent uncertainties: this results from circumstances in which it is not possible to reach an objective conclusion as to the outcome of a situation due to the circumstances themselves ratherthan to any limitation of the scope of audit procedures, for example, major litigations.

(b) Disagreements

Circumstances that can give rise to disagreements are as follows:
(i) Departures from acceptable accounting practices;
(ii) Disagreement as to the facts or amounts included in the financial statements; 

(iii) Disagreement as to the manner or extent of disclosure of facts or amounts in the financial statements;
(iv) Failure to comply with relevant legislations or other requirements.

3.5 Assertions in a Standard Auditor’s Report

The standard auditor’s report in this context is referred to as a clean or unqualified opinion. There are certain basic elements that should be pointed out for clear understanding and appreciation of the duties of auditors.
These basic assertions or elements are as follows.

(i) We have examined;
(ii) The financial statements;
(iii) Of a particular company;
(iv) Application of the GAAS;
(v) Tests of the accounting records of client;
(vi) Application of other audit procedures;
(vii) In our opinion;
(viii) Present fairly or present a true and fair view of the company’s
financial position;
(ix) In accordance with the GAAP;
(x) Consistent application of accounting principles.


Outline the basic assertions in a standard auditor’s report.


In this unit, you have learnt that the reason for the standard of reporting is to alert every auditor on the responsibilities he owes to the public and his client. The greatest legal requirement placed upon the statutory auditor is for the auditor to state if the accounts audited are true and fair. Financial statements can be said to be true and fair if the assets are truly and fairly stated, all liabilities are taken into account, the results shown in the profit and loss accounts are truly and fairly reported, and all pieces of information are provided in accordance with the GAAP and the Companies and Allied Matters Act of 1990.


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