The client’s management is responsible for preparing the financial statements which auditors examine and issue a report, thus providing reliability of the financial statements by users when making economic decisions. The auditors’ report on financial statements and related disclosures for both public and nonpublic entities provides or disclaims an opinion on whether the financial statements and related disclosures are presented in accordance with the Generally Accepted Accounting Principles (GAAP) (Louwers, Ramsay, Sinason, Strawser, & Thibodeau, 2015). This opinion is the conclusion reached by the auditors after tests of controls and substantive procedures that have been performed during the audit engagement. Paragraph 10 of Auditing Standard 3101 “Reports on Audited Financial Statements” states the type of opinion the auditors may express in various circumstances (PCAOB, 2016):
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• Explanatory language added to the auditor's standard report: Certain circumstances, while not affecting the auditor's unqualified opinion on the financial statements, may require that the auditor add an explanatory paragraph (or other explanatory language) to his or her report.
• Qualified opinion: except for the effects of the matter(s) to which the qualification relates, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the entity in conformity with GAAP.
• Adverse opinion: the financial statements do not present fairly the financial position, results of operations, or cash flows of the entity in conformity with GAAP.
• Disclaimer of opinion: the auditor does not express an opinion on the financial
• Explanatory language added to the auditor's standard report: Certain circumstances, while not affecting the auditor's unqualified opinion on the financial statements, may require that the auditor add an explanatory paragraph (or other explanatory language) to his or her report.
• Qualified opinion: except for the effects of the matter(s) to which the qualification relates, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the entity in conformity with GAAP.
• Adverse opinion: the financial statements do not present fairly the financial position, results of operations, or cash flows of the entity in conformity with GAAP.
• Disclaimer of opinion: the auditor does not express an opinion on the financial