SA 510:- Initial Audit Engagements—Opening Balances (Effective 01/04/2010)

Initial audit engagement

An engagement in which either:

1. The financial statements for the prior period were not audited; or
2. The financial statements for the prior period were audited by a predecessor auditor.

Note:- Predecessor auditor means the auditor from a different audit firm, who audited the financial statements of an entity in the prior period and who has been replaced by the current auditor.

Opening balances

Those account balances that exist at the beginning of the period. Opening balances are based upon the closing balances of the prior period and reflect the effects of transactions and events of prior periods and accounting policies applied in the prior period. Opening balances also include matters requiring disclosure that existed at the beginning of the period, such as contingencies and commitments.

Objective of the auditor w.r.t opening balances

In conducting an initial audit engagement, the objective of the auditor with respect to opening balances is to obtain sufficient appropriate audit evidence about whether:

1. Opening balances contain misstatements that materially affect the current period’s financial statements; and
2. Appropriate accounting policies reflected in the opening balances have been consistently applied in the current period’s financial statements, or changes thereto are properly accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework.

Audit Procedures w.r.t Opening Balances

The auditor shall obtain sufficient appropriate audit evidence about whether the opening balances contain misstatements that materially affect the current period’s financial statements by

1. 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 Statement of Profit and Loss
2. Determining whether the opening balances reflect the application of appropriate accounting policies; and
3. Performing one or more of the following: 

• Where the prior year financial statements were audited, perusing the copies of the audited financial statements including the other relevant documents relating to the prior period financial statements;
• Evaluating whether audit procedures performed in the current period provide evidence relevant to the opening balances; or
• Performing specific audit procedures to obtain evidence regarding the opening balances.

The auditor shall read the most recent financial statements, if any, and the predecessor auditor’s report thereon, if any, for information relevant to opening balances, including disclosures.

Consistency of Accounting Policies

1. The auditor shall obtain sufficient appropriate audit evidence about whether the accounting policies reflected in the opening balances have been consistently applied in the current period’s financial statements, and whether changes in the accounting policies have been properly accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework.
2. If the auditor concludes that:

• the current period’s accounting policies are not consistently applied in relation to opening balances in accordance with the applicable financial reporting framework; or
• a change in accounting policies is not properly accounted for or not adequately presented or disclosed in accordance with the applicable financial reporting framework, the auditor shall express a qualified opinion or an adverse opinion as appropriate in accordance with SA 705.

Audit Conclusions and Reporting

1. 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, in accordance with SA 705
2. 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, as appropriate, in accordance with SA 705.
3. If the predecessor auditor’s opinion regarding the prior period’s financial statements included a modification to the auditor’s opinion that remains relevant and material to the current period’s financial statements, the auditor shall modify the auditor’s opinion on the current period’s financial statements in accordance with SA 705 and SA 710.

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