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4220 Qualified audit reports
us SEC - Financial Reporting Manual
The audit report that an independent auditor issues under PCAOB standards (or U.S. GAAS for non-issuers) may indicate that the financial statements do not satisfy the requirements of the SEC's rules or the audit procedures applied omitted certain procedures deemed necessary by the auditor. There may be rare instances when the staff will not object to an audit report on the financial statements that contains a qualification. However, a waiver from CF-OCA would need to be requested and obtained before filing. Examples of audit reports on the financial statements that represent a substantial deficiency in the filing are set forth in 4220.1 through 4220.4. In substantial deficiency situations, the related filing, e.g. Form 10-K, is deemed not timely filed and would impact compliance with certain rule and form eligibility requirements – such as, Regulation S, Rule 144, Form S-3 and Form S-8. (Last updated: 10/30/2020)
4220.1 Disclaimer of Opinion
S-X Article 2 requires the clear expression of an opinion on the financial statements. A report that states that the auditor is disclaiming an opinion on the financial statements for any reason does not satisfy the requirements of S-X Article 2.
4220.2 Adverse Opinion
An audit report that states that the financial statements taken as a whole are not presented fairly in conformity with GAAP does not satisfy the requirements of S-X Article 2.
4220.3 Scope Qualifications [SAB Topic 1E.2]
a. A qualification with respect to the scope of the audit of the financial statements results in a finding by the staff that the audit of the financial statements required by SEC rules has not been performed.
b. Sometimes an auditor is not present for observation of inventory. In that case, the auditor must be able to satisfy himself or herself through alternative procedures. No language in the report should imply a qualification as to scope or conclusions. [FRC 607.01]
4220.4 Qualifications as to Accounting Principles or Disclosures [SAB Topic 1E.2]
Audit reports that express a qualified or "except for" opinion due to a departure from GAAP do not meet the requirements of S-X Article 2. Financial statements not in conformity with GAAP are presumed to be inaccurate or misleading, notwithstanding explanatory disclosures in footnotes or in the accountant's report. [FRC 607.01]
4220.5 In the case of an auditor's issuance of an adverse opinion on a company's ICFR, the auditor should determine the effect an adverse opinion on ICFR has on the auditor's opinion on the financial statements. An auditor should disclose whether or not an adverse opinion on ICFR affected its audit opinion on the financial statements. [AS 2201, paragraph 92]
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