SA 510: Initial Audit Engagements — Opening Balances
Objective
To obtain SAAE about whether
Op. bal. contain misstatements that materially affect the CY FS, and
Appropriate accounting policies reflected in the op. bal. have been consistently applied in CY FS or changes are properly accounted for and adequately presented & disclosed.
Definitions
Initial Audit Engagement
An engagement in which FS in the prior period are either not audited or audited by a predecessor auditor.
Opening Balances
Those account balances that exist at the beginning of the period.
These are based upon closing balances of the prior period and reflect the effect of transactions and events of prior periods and accounting policies applied in prior periods.
They also include matters requiring disclosure that existed at the beginning of the period, such as contingencies and commitments.
Predecessor Auditor
Auditor from a different audit firm, who audited the FS of an entity in the prior period and who has been replaced by the current auditor.
Requirements of SA
1. AP in respect of op. bal.
Shall read the most recent FS, if any
Determine whether PP's cl. bal. have been correctly b/f to CY, or where appropriate, adjustments have been disclosed
Determine whether op. bal. reflect application of appropriate accounting policies
Where PP FS were audited, perusing copies of audited FS
Evaluate whether AP performed in CY provide evidence relevant to op. bal.
If auditor obtains AE that op. bal. contains misstatements that could materially affects CY FS, shall perform additional AP as appropriate to determine effect on CY FS.
If concludes that misstatements exist in CY FS, shall communicate with MGT/TCWG as per SA 450
2. FS Audited by another auditor — AP
May be able to obtain SAAE regarding op. bal. by perusing copies of audited FS of PY
Ordinarily, can place reliance on cl. bal. contained, except when during the performance of AP of CY, the possibility of misstatement in op. bal. is indicated
3. Audit of FS for the first time — AP
Has to perform AP to obtain SAAE.
Since op. bal. represent effect of transactions and accounting policies in PP, auditor needs to obtain evidence having regard to nature, materiality, and account policies.
Since it will not be possible for auditor to perform certain procedures, may obtain conformation, etc. and perform suitable procedures. Can also obtain MGT representations.
4. AP in respect of evaluation of consistency of Accounting Policies
Shall obtain SAAE about whether accounting policies reflected in op. bal. have been consistently applied in CY FS.
Whether changes have been properly accounted for and adequately presented & disclosed in accordance w/ applicable FRFW.
5. Relevant information in Predecessor AR
If there was a modification to opinion, auditor shall evaluate effect of the matter giving rise to modification in assessing ROMM in CY in accordance w/ SA 315.
6. Audit Conclusion & Reporting
Opening Balances
If unable to obtain SAAE, shall express a qualified or disclaimer of opinion as appropriate.
If concludes contain a misstatement, and the effect is not properly accounted for or nor adequately disclosed, shall express a qualified or adverse opinion as appropriate.
Consistency of Accounting Policies
If concludes that not consistently applied, or change not properly accounted or adequately disclosed, shall express a qualified or adverse opinion as appropriate.
Modification to Opinion in Predecessor AR
If remains relevant and material to CY FS, shall modify opinion accordingly.