Although adverse opinions are rare, they do occur. The auditor general of Saskatchewan had issued a qualified opinion of the province's General Revenue Fund (GRF) financial statements for several years; however, during the fiscal 2012-13 audit, the auditor found additional errors and decided an adverse opinion was necessary. According to the acting auditor general, Judy Ferguson: "Because of the nature of those errors and the other errors we just felt that moved it from being a qualified to adverse opinion. We felt that a normal, average public person would not be able to readily make the adjustments to figure out what the statements were actually saying."
Judy Ferguson's comments highlight that deciding whether errors are material versus material and pervasive, which is what differentiates a qualified opinion from an adverse opinion, involves considerable professional judgment. Her comments also show that, in order to determine materiality, it is necessary to focus on the users. In this case, an important user is the "average public person" who is interested in knowing where the government is spending its money. Although adverse opinions can raise alarm and potentially impact the entity's cost of borrowing, all users are not equal. In this case, some argue that more sophisticated users-such as bond raters, whose job is to study the financial statements-know where to get the information they require. As Nola Buhr, past chair of Canada's Public Sector Accounting Board (PSAB) and of the Province of Saskatchewan's audit committee, noted: "The adverse opinion against the GRF shouldn't affect their ability to interpret information and should not affect Saskatchewan's bond rating."
APPLYING YOUR PROFESSIONAL JUDGMENT
1. How does an auditor determine who are the key users of the financial statements?
2. Why do you think the auditor general emphasized the average public person over the sophisticated user?