I was recently asked by a student member on AccountancyStudents what the impact of a qualified auditors report really is and does it make any difference to a company in the UK.

In short the answer to this is it certainly does make a difference! There are lots of reasons why an auditors report may be qualified, adverse or disclaimed.  In the UK the auditing profession is regulated by the Companies Act and when the financial statements are filed with the Registrar of Companies for placing on the public record any qualified audit opinions are looked into by the DTI (Companies House). All qualified auditors reports are looked at by the DTI.

Not only does a qualified audit opinion have a detrimental impact on the company’s credit rating but it could also have potentially serious consequences for the Directors who have approved the financial statements with a qualified audit opinion.

Consider the auditors opinion is adverse.  This means that the financial statements of the company DO NOT give a true and fair view of the state of the company’s affairs at the balance sheet date.  Under section 393 of Companies Act 2006 the directors of a company must not approve financial statements that do not give a true and fair view.  If the directors do approve financial statements which do not give a true and fair view then they are in breach of the Companies Act.  A breach of an Act is a criminal offence and as a consequence the DTI has the power to write to the company directors requesting they remedy the matter giving rise to the qualification.  If the directors refuse, the DTI can obtain a High Court Writ to force the directors to remedy the situation.  In extreme circumstances the Directors can be disqualified.

As mentioned above, qualified audit opinions also reduce a company’s credit score which can (and often does) lead to problems with suppliers, financiers, HMRC, customers and the overall reputation of the company.

So Big Brother is watching you…....