How do you audit the opening balance for initial engagement?

How do you audit the opening balance for initial engagement?
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How do you audit the opening balance for initial engagement?

Overview

The responsibilities and requirements to perform an audit of opening balances of the financial statements by a new auditor is outlined in the International Standard on Auditing (ISA) 510 Initial Audit Engagements – Opening Balances

The objective of audit opening balance

The objective of the auditor with respect to opening balances (OB) is to obtain sufficient appropriate audit evidence about whether:

1. The OB contain misstatements that materially affect the current period’s financial statements.

2. Appropriate accounting policies reflected in the OB that have been consistently applied in the current period’s financial statements or changes thereto are appropriately accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework.

The audit procedures

The auditor shall perform such additional audit procedures as are appropriate in the circumstances to determine the effect on the current period’s financial statements if the OB contain misstatements that could materially affect the current period’s financial statements.

General Audit Procedures

  1. The auditor shall read the most recent financial statements including disclosures.

  2. The auditor shall determine whether the prior period’s closing balances have been correctly brought forward to the current period or, when appropriate, have been restated.

  3. The auditor shall obtain sufficient appropriate audit evidence to determine whether the opening balances reflect the application of appropriate accounting policies.

  4. The auditor shall obtain sufficient appropriate audit evidence to review the predecessor auditor’s working papers to obtain evidence regarding the opening balances.

  5. The auditor shall obtain sufficient appropriate audit evidence to perform specific audit procedures to obtain evidence regarding the opening balances.

Predecessor action

What can be done if the predecessor auditor does not, or cannot, provide access to the audit working papers for the previous reporting period?

The successor auditor should evaluate whether audit procedures performed in the current period provide evidence relevant to the opening balances, or perform specific audit procedures to obtain evidence regarding the opening balances, and propose opening balance adjustments, if necessary.

The auditor might want to recompute the allowance for doubtful debts accounts at the end of the prior period and compare original and recomputed numbers for consistency and reasonableness.

The auditor might want to review the property and equipment and its depreciation schedules for the prior year to compare them to the opening balances, as well as review the consistency of depreciation policies.

Source :

MIA Accountant Today

ISA 510 Opening Balances dated 14 January 2020

https://www.at-mia.my/2020/01/14/isa-510-opening-balances/

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