Imagine The Voice or American Idol, except where the judges are all accountants.
Once auditors have completed an evaluation of a company's financial statements, they issue a document called (without much creativity) the "auditor's opinion." There are three basic types of opinions (the financial equivalent of "marry, date, kill"): an unqualified opinion, a qualified opinion and adverse opinion.
An unqualified opinion might sound like when that pretentious guy at dinner starts spouting off about wine. But in fact, the "unqualified" version is the most common result and by far the most positive. It basically says the auditor approves the results without qualification (thus the name "unqualified"), agreeing that the numbers accurately reflect the company's financial situation.
The qualified opinion is like when you talk about a movie after only seeing the trailer. It outlines ways in which the audit may have been limited...basically saying "everything looked okay that we could see, but we didn't get to look at everything."
Then there's the real bummer. An adverse opinion suggests that the financial statements have serious issues and the auditor is not willing to stand behind them as an accurate portrayal of the company's finances. This option is rarely used. If the auditor has issues with the financial statements, they will often opt for a fourth possibility, known as a disclaimer. This option represents the auditing equivalent of saying "pass"...the auditor issues no opinion and then describes why they couldn't come to an adequate conclusion.
Related or Semi-related Video
Finance: What Does it Mean to Churn an A...14 Views
Finance allah shmoop What does it mean to churn an
account All right Well back in colonial times before america
was the good old u s a You know what
That i po and seventeen seventy six colonists would churn
cream into butter back then churning involved moving a plunger
in a wood bucket over and over and over again
Really good for the traps and lattes there Not exciting
but well that's What happens when there's No better technology
today churning is something illegal that stock brokers dio and
remember normally brokers pay their own rent by getting paid
a commission off of each trade they do for customers
So churning in the financial sense here means that stockbrokers
are making tons of trades they really don't need to
be making in a client's account in order to generate
mohr commission for themselves they're churning the account to generate
dough for themselves Illegal very bad And sometimes it can
be difficult to detect or stop You know think about
little old ladies not really paying attention to our account
or ah cardiologists who really has no idea how wall
street works They have no idea of the brokers churning
Or not Well if you fall prey to a broker
who's involved in churning you'll end up overpaying them in
commissions And you might even have to pay extra taxes
because they realized gains from all those trades they didn't
need to make But if that brokered does get caught 00:01:26.979 --> [endTime] yeah he's toast
Up Next
What is AICPA? The AICPA is the American Institute of Certified Public Accountants, or CPAs. It is the group of accountants that basically make all...
What is Adverse Audit Opinion? An adverse audit opinion signals that an auditor has found flaws in a company’s financial statements. Adverse audi...
What is Acting Against Recommendations? In the financial world, if an investor is acting against recommendations, they are not listening to a recom...
What is insider trading and the Securities Fraud Enforcement Act of 1988? It's nothing too complicated, if this minute long video is any indication.