CPA's Unqualified Audit Opinion Letter

Many credit managers consider an unqualified opinion letter issued by a company's independent auditor as a "clean bill of financial health" for their client company. In reality, an unqualified opinion is something different. At its most basic, an unqualified opinion means that the independent auditors noted no exceptions to generally accepted accounting principles (GAAP) in their client's books and records. Consequently, they were not required to add any qualifications to the audit report.

A CPA firm can only express an unqualified opinion after it has examined the company's books and records. The CPA must reach the conclusion that the debtor has used GAAP accounting rules on a consistent basis, and that the company has made all necessary disclosures in the form of notes to the financial statements.

The standard unqualified auditor's report contains three paragraphs. The first paragraph clarifies the responsibilities of management and the auditors. The second paragraph describes the nature of the audit. It is known as the scope paragraph. The final paragraph is the opinion paragraph. It contains a concise statement of the auditor's opinion based on the audit.

Note: An unqualified opinion letter and audited financial statements does not mean that a customer is creditworthy. It is quite possible for financial statements to be audited and to show that the company under review has serious financial problems.

Source: Michael Dennis, author of "Credit and Collection Handbook" available at the NACM Bookstore.