Financial Knowledge: Pay Attention to Audit Opinions and Understand Listed Companies

two thousand and twenty-oneAfter the disclosure of the annual report, the number of non-standard audit opinions issued on the financial statements of listed companies has reached a new high in recent years. Investors are highly concerned about the connotation of audit opinions and their impact on listed companies.

1、 What is an audit opinion on financial statements

As the most important information disclosure document of a listed company, financial statements reflect the company's financial condition, operating results, and cash flow for a certain period of time. They are the key basis for investors to understand the company's profitability, operating ability, debt repayment ability, and growth ability, and play a crucial role in the decision-making of investors. So, how can we ensure the reliability and fairness of the financial information disclosed by listed companies? At this point, it is necessary to rely on independent third-party institutions with professional qualifications, namely accounting firms.

The Stock Listing Rules stipulate that the financial and accounting reports in the annual reports of listed companies must be audited by accounting firms with qualifications to engage in securities and futures related businesses. According to the provisions of auditing standards, accountants form an audit opinion on whether the financial statements have been prepared and fairly reflected in all material aspects in accordance with the applicable financial report preparation basis, based on the execution of the audit work. Simply put, the audit opinion to some extent reflects the fairness and reliability of the financial statements.

2、 There are several types of audit opinions

According to the regulations of the China Securities Regulatory Commission, audit opinions are classified into unqualified opinions, unqualified opinions with explanatory notes, qualified opinions, inability to express opinions, and negative opinions. Among them, the last four types of audit opinions belong to the non-standard audit opinion type. From the perspective of the level of assurance provided by accountants, the order from high to low is:

One is an unqualified opinion, which has the highest level of assurance. It indicates that accountants believe that the financial statements have been prepared and fairly reflected in all material aspects in accordance with the applicable financial reporting basis. The audit opinion on the financial statements of the vast majority of companies is an unqualified opinion.

The second is an unqualified opinion with explanatory notes, which belongs to an unqualified opinion, but there are matters that need to be explained, such as significant uncertainty in continuing operations or uncorrected material misstatement of other information.

The third is a qualified opinion, which indicates that accountants believe that misstatements individually or collectively have a significant impact on the financial statements, but do not have universality, or that accountants are unable to obtain sufficient and appropriate audit evidence that forms the basis of the audit opinion, and that undiscovered misstatements (if any) may have a significant impact on the financial statements, but do not have universality.

The fourth is the inability to express an opinion, which means that accountants are unable to obtain sufficient and appropriate audit evidence as the basis for forming an audit opinion, but believe that undetected misstatements (if any) may have a significant and widespread impact on the financial statements.

The fifth is a negative opinion, which indicates that accountants believe that misstatements individually or collectively have a significant and widespread impact on the financial statements.

3、 The Impact of Audit Opinion Types on Listed Companies

If the financial statements of a listed company are issued by an accountant with an opinion that cannot be expressed or a negative opinion, it is basically difficult for investors to obtain reliable information about the company's operating conditions and profitability through the financial statements. At the same time, it indicates that there is a high possibility of significant false records, misleading statements, or omissions in its information disclosure, which has seriously violated the principles and provisions of the Stock Listing Rules regarding information disclosure. Therefore, the Stock Listing Rules regard the issuance of audit reports on a company's financial and accounting reports that cannot express an opinion or a negative opinion as one of the indicators for delisting risk warning, suspension of listing, or even termination of listing of the company's stocks. This regulation is of great significance for urging companies to prepare financial statements in a truthful, accurate, and compliant manner in accordance with applicable financial reporting standards, and providing investors with true and reliable decision-making information.

If accounting is a language, then audit opinions are a "fair reflection" of these languages. Only by fully understanding the connotation and significance of audit opinions can investors truly "understand" listed companies and become rational investors.