Definition
Except for is a qualification used by auditors in their audit reports. It implies that, except for specific items mentioned, the financial statements of the audited entity provide a true and fair view of the company’s financial position and performance. This term is used when there are limitations in scope or disagreements on the treatment or disclosure of certain matters, but these issues are not significant enough to warrant an adverse opinion or a disclaimer of opinion.
Key Points:
- An ’except for’ qualification indicates minor deviations or uncertainties in the presented financial statements due to specific limited access to evidence or minor disagreements with the management’s accounting policies or disclosures.
- It serves as a middle ground between a clean (unqualified) opinion and a more severe adverse or disclaimer of opinion.
- The auditor expresses an opinion that is generally favorable but notes exceptions that could affect the users’ understanding of the financial statements.
Examples
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Limitation of Scope: A company’s inventory records are partially destroyed in a fire, limiting the auditor’s ability to verify the inventory balance. The auditor may issue an opinion stating that the financial statements give a true and fair view, except for the inventory balance due to the limitation of scope.
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Disagreement on Accounting Policy: An auditor might disagree with the company’s method of revenue recognition but finds that this issue does not pervasively misstate the financial statements. The auditor issues an opinion stating that the financial statements provide a true and fair view except for the revenue recognition policy.
Frequently Asked Questions (FAQs)
1. When is an ‘except for’ qualification used by auditors?
An ’except for’ qualification is used when there are minor limitations of scope or disagreements on accounting policies or disclosures that do not affect the overall fairness of the financial statements significantly.
2. How does an ’except for’ opinion differ from an adverse opinion?
An ’except for’ opinion indicates that the financial statements are mainly true and fair, except for some specific issues, while an adverse opinion indicates that the financial statements are misleading or incomplete to the extent that they do not present a true and fair view at all.
3. What are some common reasons for a limitation of scope?
A limitation of scope can occur due to incomplete or missing records, restrictions on access to certain information imposed by the company, or other events like destruction of documents.
4. Can an ‘except for’ opinion be corrected in subsequent audits?
Yes, the issues leading to an ‘except for’ opinion can often be addressed by the company, allowing a clean opinion to be issued in subsequent audits if the exceptions are resolved satisfactorily.
5. What should users of financial statements do when they encounter an ’except for’ opinion?
Users should carefully review the auditor’s report and the nature of the exceptions noted, as this information can affect their assessment of the company’s financial condition.
Related Terms
Qualified Audit Report
A type of audit report issued when the auditor encounters one or more issues that do not comply with generally accepted accounting principles (GAAP) but do not pervasively affect the fairness of the financial statements.
Disclaimer of Opinion
An audit opinion in which the auditor does not express any opinion on the financial statements, often due to significant limitations in scope or uncertainties that prevent sufficient evidence collection.
Adverse Opinion
An opinion issued when the auditor concludes that the financial statements are materially misstated and do not represent a true and fair view of the company’s financial position and performance.
True and Fair View
A principle that requires financial statements to be honest and accurate, reflecting the actual financial performance and position of an entity.
Limitation of Scope
Conditions that prevent an auditor from obtaining enough evidence to form an opinion on financial statements, often leading to a qualified audit opinion, disclaimer of opinion, or ’except for’ qualification.
Suggested Books for Further Studies
- “Principles of Auditing and Other Assurance Services” by Ray Whittington and Kurt Pany
- “Auditing: A Risk-Based Approach to Conducting a Quality Audit” by Karla Johnstone, Audrey Gramling, and Larry E. Rittenberg
- “Auditing and Assurance Services: An Integrated Approach” by Alvin A. Arens, Randal J. Elder, and Mark S. Beasley
Online Resources
- American Institute of CPAs (AICPA)
- International Federation of Accountants (IFAC)
- Institute of Internal Auditors (IIA)
Accounting Basics: “Except For” Fundamentals Quiz
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