We may be issued a qualified opinion on our audited financials this year. We are opting to do this as we do not agree with the treatement of a specific item. We don't have much heartburn about this now and are very comfortable defending our position as to why we do not agree with the auditors. What about the future. What if I want to do a deal - M & A or an IPO. Will this stand in the way? What are my options? I am considering leaving the firm we use for another as well.
Qualified Opinion - what now?
Answers
A qualification for non-conformance with GAAP risks major issues for both lenders - many covernants require GAAP conformance - and IPOs, as tne SEC will not likely accept such a qualification in an initial filing and selling the IPO will be much more difficult. A "private" merger deal may not be affected, but one with a public entity may be more difficult.
NOTE: The following is only my general opinion. However, I will need to know more specifics of your situation before I can provide more specific comments that will be more suited to your situation for which you can send me a message at "Sunil.
In my business experience I have had many disagreements with the auditors, but in the end have never encountered a situation that we landed up with a qualified opinion for the issued financials. Application of U.S. GAAP to complex situations is not entirely black and white....there are many shades of grey that might be subject to interpretation. I do agree with you that you certainly will be able to defend your position, but you need to access what is the real cost for the qualified opinion to your business?
If you are issued a qualified opinion, you are just bringing more scrutiny to your financial statements for no reason at all, that might result in increased
On the other hand if you are so certain that your auditors are not interpreting GAAP properly, suggest obtaining opinion of another external consultant and provide a
In a M&A deal, valuation of the business is independent of U.S. GAAP numbers. So you can get the valuation adjusted based on your interpretation.
By now your issue has probably been resolved. However, as a general statement, I find un productive to go on with a qualified audit opinion. What can be so important to pay such a high price?
I'm a retired
If the qualified opinion is solely based on a single item treatment (assuming all other things are in GAAP compliance), the long shot is to get a SECOND opinion on the item from another
IF (a big if) the other auditing firm arrives at a different interpretation and more in line with yours, then you can present the opinion to mitigate the effects of the first one.
However, if the second auditing firm arrives at the same conclusion/opinion, at the end of the day you do not have a choice but to change your item accounting treatment.
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FP&A