A qualified opinion is expressed the auditor when he concludes that an unqualified opinion cannot be expressed but that the effect of any disagreement with management or limitation on scope is not as material and pervasive as to require an adverse opinion or a disclaimer of opinion. Where an auditor has to give a qualified opinion, he should express clearly the nature of the qualification on the report. The reasons for the qualification should also be stated. A qualified opinion should be expressed as being “except for” the matter to which the qualification relates.
An adverse opinion is expressed when the effect of a disagreement is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements. The auditor gives an adverse opinion when he states that the financial statements do not present a true and fair view of the financial position of the company and the results of its operations and its cash flows.