'Except For' Opinion

Definition

An “Except For” opinion is a type of qualified opinion that an auditor can express during an audit of an entity’s financial statements. This opinion suggests that the financial statements generally present the financial position fairly, except for certain issues or conditions that require disclosure. The “Except For” opinion is typically used when there is a scope limitation in the auditor’s work or when there are specific issues that prevent full compliance with Generally Accepted Accounting Principles (GAAP).

Scope Limitation in “Except For” Opinion

A scope limitation occurs when the auditor is unable to obtain sufficient appropriate evidence to support aspects of the financial statements, which could be due to factors such as:

Restriction imposed by the client
External circumstances that prohibit specific auditing procedures (e.g., inability to confirm accounts receivable due to erroneous contact details)

Example Scenario

An auditor might issue an “Except For” opinion if there were impediments to verifying certain transactions that the auditor deems significant for the financial statements. For instance, if the auditor couldn’t confirm accounts receivable because the clients’ contact details were incomplete or inaccessible, this would lead to a scope limitation affecting the audit opinion.

Frequently Asked Questions (FAQs)

What does an “Except For” opinion indicate?

An “Except For” opinion indicates the financial statements present the financial statement fairly, with exceptions due to specified issues such as scope limitations or non-compliance with GAAP.

How is an “Except For” opinion different from an adverse opinion?

An “Except For” opinion signifies that most parts of the financial statements are presented fairly except for specific exceptions, whereas an adverse opinion suggests the financial statements do not present the financial position fairly at all and are significantly misrepresented.

Can an “Except For” opinion affect a company’s reputation?

Yes, an “Except For” opinion can impact a company’s reputation as it highlights deficiencies or limitations which might concern investors, creditors, and other stakeholders.

What are the common causes of issuing an “Except For” opinion?

Common causes include scope limitations preventing the auditor from obtaining sufficient audit evidence, non-compliance with GAAP, and discrepancies in financial records or internal controls.

How can an “Except For” opinion be avoided?

Companies can improve internal controls, ensure complete documentation, and cooperate fully with auditors to provide all necessary information to avoid an “Except For” opinion.

Adverse Opinion: An auditor’s opinion that the financial statements do not present a true and fair view of the entity’s financial situation.
Unqualified Opinion: A clean auditor’s report indicating that the financial statements present the financial position fairly in all material respects in accordance with GAAP.
Disclaimer of Opinion: A statement issued when the auditor does not express an opinion on the financial statements due to an inability to obtain sufficient evidence.

Online References and Resources

Suggested Books for Further Studies

“Auditing and Assurance Services” by Alvin A. Arens, Randal J. Elder, and Mark S. Beasley
“Principles of Auditing and Other Assurance Services” by Ray Whittington and Kurt Pany
“Auditor’s Guide to IT Auditing” by Richard Cascarino
“Auditing: A Risk-Based Approach” by Karla M. Johnstone, Audrey A. Gramling, and Larry E. Rittenberg
“Wiley Practitioner’s Guide to GAAS 2020” by Joanne M. Flood

Fundamentals of “Except For” Opinion: Auditing Basics Quiz

### What does an “Except For” opinion indicate regarding financial statements? - [x] The financial statements present the financial position fairly, except for specified conditions. - [ ] The financial statements do not present the financial position fairly. - [ ] The financial statements present the financial position fairly in all material respects. - [ ] The auditor chose not to express an opinion on the financial statements. > **Explanation:** An “Except For” opinion indicates the financial statements are fairly presented except for specified conditions requiring disclosure. ### Which of the following can lead to an “Except For” opinion? - [x] Scope limitation in the auditor’s work. - [ ] Complete adherence to GAAP. - [ ] An unblemished record of internal controls. - [ ] Only material misstatements affecting the financial statements. > **Explanation:** An “Except For” opinion is often issued when there is a scope limitation that affects the auditor's ability to provide complete assurance on the financial statements. ### How can a company mitigate the risk of receiving an “Except For” opinion? - [x] Improving internal controls and providing full access to documentation to auditors. - [ ] Avoiding all external audits altogether. - [ ] Disposing of records pre-audit to ensure no discrepancies. - [ ] Limiting the interaction between the auditor and the company's accounting team. > **Explanation:** Ensuring robust internal controls and full transparency with auditors minimizes the risk of an “Except For” opinion. ### What is a primary difference between an “Except For” opinion and an adverse opinion? - [x] An “Except For” opinion identifies exceptions, while an adverse opinion indicates an overall fair presentation failure. - [ ] An adverse opinion supports the company's financial statements, while an “Except For” opinion does not. - [ ] Both opinions suggest that the financial statements are accurate and reliable. - [ ] An “Except For” opinion only applies to tax-related audits. > **Explanation:** An “Except For” opinion indicates fair representation with exceptions, but an adverse opinion suggests failure to present the financial position fairly overall. ### Which auditing standard might an “Except For” opinion indicate non-compliance with? - [x] Generally Accepted Accounting Principles (GAAP) - [ ] International Financial Reporting Standards (IFRS) - [ ] Sarbanes-Oxley Act Compliance Standards - [ ] Audit Data Standards (ADS) > **Explanation:** An “Except For” opinion often indicates some non-compliance with GAAP (Generally Accepted Accounting Principles). ### When is an “Except For” opinion most commonly issued? - [x] When an auditor finds limitations in the scope of their work or material misstatements. - [ ] When the financial statements perfectly comply with all accounting standards. - [ ] During internal audits conducted by the company's managerial team. - [ ] If the company requests a favorable opinion from the auditor. > **Explanation:** An “Except For” opinion is issued when there are scope limitations or material misstatements that need to be disclosed. ### What type of auditor's report suggests that the financial statements do not present the financial situation fairly at all? - [ ] Unqualified opinion - [ ] Disclaimer of opinion - [x] Adverse opinion - [ ] “Except For” opinion > **Explanation:** An adverse opinion indicates that the financial statements do not fairly represent the company's financial situation. ### Who issues the “Except For” opinion? - [ ] The company's internal accounting team. - [ ] Financial analysts reviewing the company's performance. - [ ] External Independent Auditors (CPA firms). - [ ] Regulatory bodies like the SEC or PCAOB. > **Explanation:** An “Except For” opinion is issued by external independent auditors after reviewing the company's financial statements.

Thank you for exploring the crucial aspects of the “Except For” opinion in auditing and fine-tuning your understanding through the quiz. Your continuing pursuit of excellence in auditing practices is commendable!