Auditing opening balances

Introduction

ISA 510 Initial Engagements - Opening Balances requires that when auditors take on a new client, they must ensure that:

• opening balances do not contain material misstatements;
• prior period closing balances have been correctly brought forward or, where appropriate, restated; and
• appropriate accounting policies have been consistently applied, or changes adequately disclosed.

Considerations

• Were the previous financial statements audited?
• If the previous financial statements were audited, was the opinion modified?
• If the previous opinion was modified, has the matter been resolved since then?
• Were any adjustments made as a result of the audit? If so, has the client adjusted their accounting ledgers as well as the financial statements?

If auditors are unable to satisfy themselves with regard to the preceding period, they will have to consider modifying the current audit report.

Procedures

Where the prior period was audited by another auditor or unaudited, the auditors will need to perform additional work in order to satisfy themselves regarding the opening position. Such work would include:

• consulting the client's management
• reviewing records and accounting and control procedures in the preceding period
• consulting with the previous auditor and reviewing (with their permission) their working papers and relevant management letters
• substantive testing of any opening balances where the above procedures are unsatisfactory.

Some evidence of the opening position will also usually be gained from the audit work performed in the current period.

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