Does Qualified = Bad?
Understanding Audit Reports for Not-For-Profits
In general conversation, the word “qualified” is often considered to be a positive attribute implying that a person has adequate skills for the job at hand and can be trusted. In the context of audit reports, however, a qualified report is not something to aspire to.
As a board member of a not-for-profit, if you see the words “Qualified Audit Opinion” you should be asking why, and consider if changes within your organisation are required.
There are many reasons why an audit report might be qualified, and the seriousness of issues raised needs to be considered in the context of the specific organisation. The most common qualification we see when reviewing financial statement audits conducted by other auditors for not-for-profit entities and is worded as follows:
"As is common for organisations of this type, it is not practical for the management committee to maintain adequate systems of internal control over funds received prior to their initial entry in the financial records. Accordingly, our audit in relation to the funds collected was limited to amounts recorded in the financial records. We, therefore, are unable to express an opinion as to the completeness of income."
This paragraph is essentially saying that the auditor cannot be sure that all income received has been recorded. For many auditors, it seems to be the ‘go-to’ report wording for any not-for-profit entity. At SAAS Audit we do on occasion need to qualify our audit reports in this manner, but it is not the norm.