A disclaimer of Opinion: Such opinion has to be necessarily issued when the auditor is unable to express an opinion on the financial statements because he fails to obtain sufficient information to form an opinion. This may arise when certain limitations are imposed on the scope of audit the management or because of significant uncertainty in determination of various figures appearing in the financial statements. For instance, non-availability of records either because they are destroyed in fire or seized the government authorities or they are not accessible for any other reasons. Such an opinion is appropriate when an auditor fails to obtain sufficient evidence to express an opinion because in the absence of records, he cannot conclude that the accounts do not reflect a true and fair view. The auditor must also state the reasons whenever disclaimer of opinion is given.
An adverse opinion: An adverse opinion is issued the auditor when the financial statements do not show a true and fair view of the state of affairs or of the operating results. At times when the effect of disagreement is so material and pervasive on financial statements that the auditor concludes that the qualification in the audit report is not adequate to disclose the misleading picture of the financial statements. An adverse opinion is given when there is flagrant violation of accounting principles or evidence is not available for material transactions or where there exists material misstatement or concealment about financial affairs. The auditor must have sufficient evidence in favor of his conclusions. It should be appreciated that this opinion is also on “overall” opinion on the entire financial statements and owes direct relationship to the portrayal of the financial position in the financial statements. Where the auditor gives an adverse opinion, he must disclose all material reasons therefore and clearly state that the financial statements do not reflect a true and fair view.