## SA 510 – Opening Balances

### Factors Affecting Nature & Extent of Audit Procedures

The nature and extent of audit procedures for opening balances depends on:

1. Accounting policies followed by the entity

2. Nature of opening balances and the Risk of Material Misstatement (ROMM) in the current year's financial statements

3. Significance of opening balances relative to the current period financial statements

4. Whether previously audited – if yes, whether a modified opinion was given on those prior-period statements

### Consistency of Accounting Policies

If the auditor concludes that the entity's accounting policies are not consistently applied in relation to opening balances:

Situation	Auditor's Action
Change in policy is properly accounted and presented	No modification required
Change is not properly accounted / not properly represented	Modify opinion → Qualified or Adverse

> Key Rule: A change in accounting policy that is not properly reflected triggers a modified opinion. The type (Qualified vs. Adverse) depends on pervasiveness of the misstatement.

Worked example

### Example 1

An entity switches from the Straight Line Method (SLM) to the Written Down Value (WDV) method of depreciation between years but does not disclose the change or its effect in the financial statements. The auditor finds the opening retained earnings (brought forward) are affected. Since the change is not properly presented, the auditor issues a Qualified Opinion (assuming the effect is material but not pervasive).

### Example 2

An entity consistently applies the percentage-of-completion method for revenue from long-term contracts. In the current year, the auditor confirms the same policy applies to opening balances — no issue arises regarding consistency.

⚠️ Common exam mistakes

Confusing 'consistency of accounting policies' with whether the policy is itself correct — consistency only means the same policy must be applied uniformly across periods
Assuming modified opinion for opening balances is always 'Qualified' — if the inconsistency is pervasive, an Adverse opinion is appropriate
Ignoring the significance threshold — minor opening balance differences may not need the same depth of procedures as material ones
Forgetting that whether the prior period was audited (and what opinion was given) directly affects current-year procedures under SA 510

Reference: SA 510 — SA 510 – Initial Audit Engagements – Opening Balances (ICAI)

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SA 510 – Opening Balances: Factors and Consistency of Accounting Policies

Worked example

⚠️ Common exam mistakes