## Objectives Under SA 510 — Initial Engagement: Opening Balances

As per SA 510, the auditor's objectives are to obtain Sufficient Appropriate Audit Evidence (SAAE) about whether:

(a) Opening balances contain misstatements that materially affect the current period's financial statements; AND

(b) Appropriate accounting policies reflected in the opening balances have been consistently applied in the current period, or changes thereto are properly accounted for and adequately presented and disclosed in accordance with the Applicable Financial Reporting Framework (AFRF).

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### Why Opening Balances Matter

Opening balances flow directly into current-period figures:

Opening Balance	Current Period Impact
Inventory	COGS → Gross Profit
Receivables	Revenue, cash flows
PPE (WDV)	Depreciation charge
Long-term debt	Interest expense

Errors in opening balances distort current-year profit, ratios, and comparatives.

### When SA 510 Applies

Audit engagement for the first time (new auditor appointed)
Prior period financial statements were not audited

Worked example

### Example 1

An auditor is appointed for FY 2024-25. Under SA 510 objectives: (a) The auditor must check whether opening debtors of ₹30 lakhs contain any material misstatement that would affect the current year P&L — e.g., fictitious debtors carried forward. (b) The auditor must verify that the revenue recognition policy used when measuring those opening balances is consistently applied in the current year.

⚠️ Common exam mistakes

Thinking SA 510 only applies when the prior auditor issued a modified opinion — SA 510 applies to all initial engagements regardless of prior opinion
Focusing only on objective (a) — misstatements — and ignoring objective (b) about consistency of accounting policies
Treating opening balance verification as optional when a predecessor auditor's working papers are available

Bare-Act text Objectives · SA 510 – Initial Engagement: Opening Balances · click to expand

As per SA 510, 'Initial Engagement – Opening Balances,' the objective of the auditor with respect to the opening balances is to obtain SAAE about whether: (a) Opening balances contain misstatements that materially affect the current period's FS; and (b) Appropriate accounting policies reflected in the opening balances have been consistently applied in the current period's FS, or changes thereto are properly accounted for and adequately presented and disclosed in accordance with the AFRF.

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Objectives of the Auditor Under SA 510

Worked example

⚠️ Common exam mistakes