ISA 510

ISA 510 – Objective

In conducting an initial audit engagement, the objective of the auditor with respect to opening balances is to obtain sufficient appropriate audit evidence about whether:

  1. Opening balances contain misstatements that materially affect the current period’s financial statements (Balance Sheet, Income Statement, Cash Flow Statement); and
  2. Appropriate accounting policies reflected in the opening balances 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.

ISA 510 – Definitions

For the purposes of the ISAs, the following terms have the meanings attributed below:

  1. Initial audit engagement: An engagement in which either:
    i. The financial statements for the prior period were not audited; or
    ii. The financial statements for the prior period were audited by a predecessor auditor.
  2. Opening balances: Those account balances that exist at the beginning of the period.

Opening balances are based upon the closing balances of the prior period and reflect the effects of transactions and events of prior periods and accounting policies applied in the prior period. Opening balances also include matters requiring disclosure that existed at the beginning of the period, such as contingencies and commitments.

   c. Predecessor auditor: The auditor from a different audit firm, who audited the financial statements of an entity in the prior period and who has been replaced by the current auditor.

ISA 510 – Requirements

Audit Procedures

The auditor shall read the most recent financial statements, if any, and the predecessor auditor’s report thereon, if any, for information relevant to opening balances, including disclosures.
The auditor shall obtain sufficient appropriate audit evidence about whether the opening balances contain misstatements that materially affect the current period’s financial statements by:

  1. Determining whether the prior period’s closing balances have been correctly brought forward to the current period or, when appropriate, have been restated;
  2. Determining whether the opening balances reflect the application of appropriate accounting policies; and
  3. Performing one or more of the following:
    i. Where the prior year financial statements were audited, reviewing the predecessor auditor’s working papers to obtain evidence regarding the opening balances;
    ii. Evaluating whether audit procedures performed in the current period provide evidence relevant to the opening balances; or
    iii. Performing specific audit procedures to obtain evidence regarding the opening balances.

If the auditor obtains audit evidence that the opening balances contain misstatements that could materially affect the current period’s financial statements, 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 auditor concludes that such misstatements exist in the current period’s financial statements, the auditor shall communicate the misstatements with the appropriate level of management and those charged with governance in accordance with ISA 450.

Consistency of Accounting Policies

The auditor shall obtain sufficient appropriate audit evidence about whether the accounting policies reflected in the opening balances have been consistently applied in the current period’s financial statements, and whether changes in the accounting policies have been appropriately accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework.

Relevant Information in the Predecessor Auditor’s Report

If the prior period’s financial statements were audited by a predecessor auditor and there was a modification to the opinion, the auditor shall evaluate the effect of the matter giving rise to the modification in assessing the risks of material misstatement in the current period’s financial statements in accordance with ISA 315.

Audit Conclusions and Reporting

Opening Balances

If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening balances, the auditor shall express a qualified opinion or disclaim an opinion on the financial statements, as appropriate, in accordance with ISA 705.
If the auditor concludes that the opening balances contain a misstatement that materially affects the current period’s financial statements, and the effect of the misstatement is not appropriately accounted for or not adequately presented or disclosed, the auditor shall express a qualified opinion or an adverse opinion, as appropriate, in accordance with ISA 705.

Consistency of Accounting Policies

If the auditor concludes that:

  1. the current period’s accounting policies are not consistently applied in relation to opening balances in accordance with the applicable financial reporting framework; or
  2. a change in accounting policies is not appropriately accounted for or not adequately presented or disclosed in accordance with the applicable financial reporting framework, the auditor shall express a qualified opinion or an adverse opinion as appropriate in accordance with ISA 705.

Modification to the Opinion in the Predecessor Auditor’s Report

If the predecessor auditor’s opinion regarding the prior period’s financial statements included a modification to the auditor’s opinion that remains relevant and material to the current period’s financial statements, the auditor shall modify the auditor’s opinion on the current period’s financial statements in accordance with ISA 705 and ISA 710.

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