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What is an Adverse Opinion?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 20 September 2016
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    Conjecture Corporation
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An adverse opinion is a report that is rendered by an accounting professional after examining the accounting statements and records of a business or other entity, if the records and statements are found to not be in compliance with recognized accounting standards. The issuance of this type of financial statements opinion is considered extremely serious, and is only done when the lack of documentation and verifiable accounting is so pervasive that there is no way to reconcile the conflicting records. In some countries, the rendering of an adverse opinion audit can lead to investigation by regulatory authorities, especially when the organization is structured as a for-profit entity.

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A certified public accountant may issue an adverse opinion after conducting an audit of an organization’s accounting records. The purpose of the audit is to make sure that all resources of the entity are properly accounted for in the accounting books, and thus eliminate any question about the proper use of those resources. When the CPA finds irregularities in the way transactions are documented, or in how expenditures are accounted for, he or she will normally seek to identify if the problem is simply incorrect posting of various line items, or if there was a deliberate attempt to falsify the financial records. The former situation can normally be resolved in a short period of time, but the latter may require that the CPA issue a negative financial statements opinion, thus paving the way for regulatory agencies to investigate the matter in more detail.

In the event that an adverse opinion is issued, the organization normally has a period of time to bring the financial accounting into compliance with generally accepted accounting principles, sometimes referred to as GAAP. At the end of that grace period, a second audit takes place. If the results of that second audit show that the organization has brought its accounting into compliance with prevailing accounting standards, the adverse opinion can be reversed, and the books are certified as complete and in proper order.

A business or other entity can avoid the rendering on an adverse opinion by making sure that all financial records are kept in proper order. This means maintaining the backup documentation that serves as the evidence for each entry made into the accounting books. By keeping the accounts payable and receivable up to date and accurate, it is much easier to supply an auditor with everything he or she needs to evaluate the financial record keeping of the organization, and render a favorable opinion that attests to the accuracy of the accounting.

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