Audit Procedures and Reporting Implications for Opening Balances in First-Year Audits

## Opening Balances in Initial Audit Engagements (SA 510)

### Key Definitions

Initial Audit Engagement: An engagement where prior period financial statements were either:

• (a) Not audited at all, OR
• (b) Audited by a predecessor auditor

Opening Balances (two components):

1. Closing balances of prior period – reflect effect of prior period transactions, events, and accounting policies applied

2. Disclosures – contingencies and commitments existing at the start of the period

### Auditor's Objective

Obtain SAAE that opening balances:

1. Do not contain material misstatements that would affect the current period FS

2. Reflect appropriate and consistent accounting policies (or changes are properly disclosed)

### Audit Procedures – Step by Step

Step 1: Read the prior year auditor's report (if any) for information relevant to opening balances and disclosures.

Step 2: Verify that prior period closing balances are correctly brought forward to the current period.

Step 3: Verify opening balances reflect appropriate accounting policies.

Step 4: Perform one or more of:

• Peruse copies of prior year audited FS (if prior year was audited)
• Evaluate whether current period procedures incidentally provide evidence on opening balances
• Perform specific audit procedures targeting opening balances

Step 5 – If misstatements found in OB:

• Perform additional audit procedures to determine effect on current period FS
• Communicate misstatements to management and TCWG per SA 450

### Audit Conclusions & Reporting Decision Tree

> Key distinction: Unable to obtain evidence → DO possible. Misstatement exists and is not corrected → AO possible.