SA 510 – Initial Audit Engagements – Opening Balances Flashcards
In an initial audit engagement, the auditor will have to satisfy about the Sufficiency & Appropriateness of ‘Opening Balances’ to ensure that they are free from misstatements, which may materiality affect the current FS.
Lay down the audit procedure, you will follow, when FS are audited for the first time.
If, after performing the procedure, you are not satisfied about the correctness of ‘Opening Balances’, what approach you will adopt in drafting your audit report?
or
Mr. X has been appointed as an auditor of Mis ABC Ltd., Mr. X wants to be satisfied about
the sufficiency and appropriateness of ‘Opening Balances’ to ensure that they are free from
misstatements. Lay down the audit procedure, Mr. X should follow, in the initial audit
engagement of Mis ABC Ltd. Also suggest the approach to be followed regarding mention
in the audit report if Mr. Xis not satisfied about the correctness of ‘Opening Balances’?
Audit procedures for verification of opening balances in case of initial audit engagement:
SA 510, deals with the auditor’s responsibilities relating to verification of opening balances in case of initial audit engagements. Accordingly, auditor shall obtain SAAE about whether the opening balances contain misstatements that materially affect the current period’s FS by:
(a) Determining whether the prior period’s closing balances have been correctly brought forward to the current period or, when appropriate, any adjustments have been disclosed as prior period items in the current year’s SPL;
(b) Determining whether the opening balances reflect the application of appropriate accounting policies; and
(c) Performing one or more of the following:
(i) Where the prior year F.S. were audited, perusing the copies of the audited F.S. including the other relevant documents relating to the prior period F.S.;
(ii) Evaluating whether audit procedures performed in the current period provide evidence relevant to the opening balances; or
(iii) Performing specific audit procedures to obtain evidence regarding the opening balances.
Approach to be followed while drafting Report:
If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening balances, the auditor shall express a qualified opinion or a disclaimer of opinion, as appropriate. Further, If the auditor concludes that the opening balances contain a misstatement that materially affects the current period’s financial statements, and the effect of the misstatement is not properly
accounted for or not adequately presented or disclosed, the auditor shall express a qualified opinion or an adverse opinion in accordance with SA 705.