"AJSH & Co LLP"    is now    "Mercurius & Associates LLP" "AJSH & Co LLP"    is now    "Mercurius & Associates LLP" "AJSH & Co LLP"    is now    "Mercurius & Associates LLP"

SA 510 Initial Audit Engagements- Opening Balances

images
images
15179475 lel

While carrying out an Initial Audit Engagement, an auditor is responsible for the appropriateness of the opening balances in the financial statements. Such opening balances require some disclosures to be made before the starting of the financial period. The objective of the auditor in conducting an initial audit engagement regarding opening balances is to obtain sufficient and appropriate audit evidence about the:

  • Material misstatements in the opening balances that could affect current period’s financial statements; and
  • Whether accounting policies in the previous period have been consistently applied in the current period, and any changes in these policies are properly accounted for, presented and disclosed according to the applicable financial reporting framework.

Definitions

  • Initial Audit Engagement is an engagement where the financial statements of the previous period are not audited or the financial statements of the previous period were audited by a predecessor auditor.
  • Opening balances are the account balances existing in the beginning of the period. They are the closing balances of the prior period which depicts the transactions and events of the prior period and the accounting policies applied in the prior period.
  • Predecessor auditor is an auditor of a different firm who audited the financial statements of the firm in the prior period and has been replaced by the current auditor.

Audit Procedures

  • The auditor shall examine the recent financial statements and the predecessor auditor’s report for concluding disclosures regarding opening balances.
  • The auditor shall obtain sufficient and appropriate audit evidence to ensure that the financial statements are not affected by any material misstatements in the opening balances by:
    • Determining that the current year’s opening balances have been correctly carried forward from the prior period’s financial statements with appropriate adjustments,
    • Determining that the opening balances have appropriate accounting policies,
    • Applying one or more of the following:
      • Using the documents of the previously audited financial statements by a predecessor auditor;
      • Ensuring the audit procedures followed in the current period are related to the opening balances; or
      • Performing specified audit procedures.
  • The auditor shall perform additional audit procedures, as necessary, if the financial statements contain any material misstatements. Also, he shall communicate such misstatements to those charged with governance and to other levels of management.

Audit reporting and conclusions

  • If the auditor is unable to obtain sufficient and appropriate audit evidence on the opening balances, accounting policies are inconsistent and any changes are not presented, accounted or disclosed, in accordance with SA 705, he shall express a qualified opinion or a disclaimer of opinion, whichever appropriate.
  • If the auditor concludes that the financial statements contain a material misstatement in the opening balances, accounting policies are inconsistent and any changes are not presented, accounted or disclosed, that is pervasive to the users, in accordance with SA 705, he shall express a qualified opinion or an adverse opinion.

Modification by the predecessor to the Opinion in Auditor’s Report
If the previous period’s financial statements contain a modification in the auditor’s opinion by the predecessor auditor, that is material and pervasive to current period’s financial statements, the auditor shall modify his opinion in accordance with SA 705 and SA 710.

Here at MAS, we provide our clients with various audit services like statutory audit, internal audit, stock audit etc. and assist them in complying with laws and regulations applicable. If you have any questions or wish to know more in this regard, kindly contact us.

 

images

Ready to assist with any of your queries or concerns

images

Ready to assist with your Queries