## Opening Balances — Audit Procedures

Governing Standard: SA 510 – Initial Audit Engagements – Opening Balances

A newly appointed auditor must obtain sufficient appropriate audit evidence that opening balances do not contain misstatements that materially affect the current period's financial statements.

### Step 1: Read Prior Year Financial Statements

Read the most recent financial statements (if any)
Read the predecessor auditor's report (if any)
Look for information relevant to opening balances, including disclosures

### Step 2: Obtain Audit Evidence — Three Objectives

Objective	What to Check
1. Correct brought-forward	Prior period closing balances correctly brought forward; or adjustments disclosed as prior period items in current year P&L
2. Consistent accounting policies	Opening balances reflect application of appropriate accounting policies
3. Specific procedures	See below

### Step 3: Specific Audit Procedures (one or more)

(i) Where prior year was audited: peruse copies of audited financial statements and other relevant prior period documents

(ii) Evaluate whether current period audit procedures provide evidence relevant to opening balances

(iii) Perform specific audit procedures targeted at obtaining evidence about opening balances

Worked example

### Example 1

Scenario: The newly appointed auditor of BTN Limited reads the prior year audited financial statements and predecessor auditor's report. The auditor then: (1) traces all closing balances from the prior year balance sheet to the current year opening balances to confirm they were carried forward without error; (2) checks that the same accounting policies (e.g., depreciation method, inventory valuation) were applied; and (3) where prior year retained earnings appear large and unverified, requests the predecessor auditor's working papers or performs rollback testing using current year evidence (e.g., confirms receivables outstanding at year-end were real by checking subsequent receipts).

⚠️ Common exam mistakes

Skipping the read of the predecessor auditor's report — it can reveal prior year qualifications or emphasis paragraphs directly relevant to opening balances.
Assuming that because last year's accounts were audited by someone else, the opening balances need no work — the new auditor still bears responsibility for current year figures.
Confusing 'prior period adjustments in current year P&L' with errors — legitimate restatements are acceptable if properly disclosed; the auditor must verify the disclosure, not just reject the adjustment.

Reference:

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Opening Balances — Audit Procedures for Newly Appointed Auditor

Worked example

⚠️ Common exam mistakes