An unqualified report, which is otherwise known as unconditional opinion is issued the auditor when he does not have any reservation with regard to the matters contained in the financial statements. In such a case, the audit report may state that the financial statements give a true and fair view of the state of affairs and profit and loss account for the period. Under the following circumstances an auditor is justified in issuing an unqualified report.
i. The financial information has been prepared using acceptable accounting policies, which have been consistently applied.
ii. The financial information complies with relevant regulations and statutory requirements, and
iii. There is adequate disclosure of all material relevant to the proper presentation of the financial information, subject to statutory requirements, where applicable.
Qualified audit report, on the other hand, is one, which does not give a clear chit about the truth and fairness of the financial statements but makes certain reservations. The gravity of such reservation will vary depending upon the circumstances. In majority of cases, items, which are the subject matter of qualification, are not so materials as to affect the truth and fairness of the whole accounts but merely create uncertainty about a particular item. In such cases, it is possible for the auditors to report that in their opinion but subject to specific qualifications mentioned, the accounts present a true and fair view. Thus, an auditor may give his particular objection or reservation in the audit report and state “subject to the above, we report that balance sheet shows a true and fair view ………….” The auditor should also give reasons for qualification. The words “subject to” are essential to state any qualification. It is also necessary that the auditors should quantify, whenever possible the effect of these qualifications on the financial statements in clear and unambiguous manner if the same is material and state aggregate impact of qualifications.
Thus, it is clear from the above that in case of clean report, the auditor has no reservation in respect of various matters contained in the financial statements but a qualified report may involve certain matters involving difference of opinion between the auditor and the management.