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What is a “disclaimer of opinion,” and why does it matter for taxpayer wallets?

February 23, 2016

The Government Accountability Office (GAO) is the chief auditing agency for the United States Congress. The GAO audits the consolidated financial statements of the federal government. In recent decades, year after year, the GAO has stated that it has been “prevented from expressing an opinion” on the financial statements of the US government.

In the private sector, auditors deliver four main types of opinions on company financial statements.

A ‘clean’ or ‘unmodified’ opinion arises if the auditor believes the statements fairly and accurately present the financial position, in accordance with generally accepted accounting principles.

A ‘qualified’ opinion is the next step down, which may note exceptions to the overall ‘fair presentation,’ which can include the scope of the audit.

An ‘adverse’ opinion includes major exceptions or warnings, for instance, when the auditor believes there are questions whether the firm can remain a ‘going concern.’

A ‘disclaimer’ of opinion arises if the auditor simply refuses to provide an opinion, given limitations on the scope of the audit, or if significant material weaknesses in the internal controls and reporting material mean that an opinion can’t be delivered.

In a way, disclaimers of opinion can be the worst opinions of all.  And yet, that is the type of opinion the GAO has delivered on the consolidated financial statements of the US government for decades.

Taxpayers and citizens deserve accountability for government money, and the annual report of the US government should serve as a means for securing that accountability. Unfortunately, our government hasn’t been measuring up, even on its own standards and auditor opinions.

In the private sector, recurring adverse or disclaimer opinions carry significant consequences, including a loss of access to capital markets and other sources of financing.  Our federal government carries on, despite these repeated opinions, in part because investors in Treasury securities remain confident in the ability of the government to tax US citizens.

At least for now.  In a recent Facebook post, economist Robert Higgs included "The system is virtually immune to change. It will grind on till the day it can no longer grind on, which will be the day foreigners refuse to lend it the vast sums it needs to continue with its 'business' as usual."

You can read the GAO’s opinion on last year’s financial statements here.  The U.S. Government will release its latest annual report this Thursday, February 25th, at 3pm ET.  We will be reading the GAO opinion in there closely, and that report will be available here.



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