Audit Opinions
Clean, qualified, adverse, disclaimer.
The audit opinion is the single most important line in the whole report. There are four kinds, and moving down the list means moving from 'trust the numbers' to 'do not'. Unqualified (clean) The statements give a true and fair view. What you want to see, the numbers can be relied on. Qualified Mostly fine, EXCEPT for one specific issue the auditor names. Read exactly what was excepted. Adverse The statements do NOT give a true and fair view. A serious red flag, the numbers are misleading. Disclaimer The auditor couldn't gather enough evidence to give any opinion. Also serious, something prevented a proper audit. A qualified opinion might say the accounts are true and fair 'except for' the valuation of a particular investment the auditor couldn't verify. Everything else stands; that one item is in doubt. You'd size how material that item is before trusting the rest. Going concern Separately, watch for any 'going concern' language, meaning a doubt about whether the company can survive the next year. Even within a clean opinion, an emphasis-of-matter paragraph on going concern is a major flag. Rule of thumb: a clean opinion is the baseline expectation, not a bonus. Anything less demands you understand exactly why before going further.
Part of Learn NEPSE Investing, a free course on reading Nepali company accounts and charts. Section: The Annual Report.