ISA 510 DEALS with the auditor’s responsibilities RELATING to opening balances in an ‘Initial Audit Engagement‘.
Table of Contents
- ISA 510 – Introduction
- ISA 510 – Objective
- ISA 510 – Definitions
- ISA 510 – Requirements
ISA 510 – Introduction
1. Scope of this ISA
It states that ‘Opening Balances’ INCLUDE matters requiring disclosure that existed at the beginning of the period, such as Contingencies and Commitments.
When the Financial Statements INCLUDE ‘Comparative Financial Information‘, the requirements and guidance in ISA 710 also apply.
ISA 300 includes ADDITIONAL requirements and guidance regarding activities prior to starting an initial audit.
2. Effective Date
This ISA is EFFECTIVE for audits of financial statements for periods beginning on or after December 15, 2009.
ISA 510 – Objective
The objective of the ‘auditor’ with respect to opening balances is to OBTAIN sufficient appropriate audit evidence about whether:
- Opening balances contain misstatements that materially affect the current period’s financial statements; AND
- Appropriate accounting policies reflected in the opening balances have been consistently applied.
ISA 510 – Definitions
1. Opening Balances
Those account balances that EXIST at the beginning of the period. Opening balances also include matters requiring disclosure that existed at the beginning of the period, such as ‘Contingencies and Commitments’.
2. Initial Audit Engagement
An ‘Engagement’ in which either:
- The financial statements of the prior period were not audited; OR
- The financial statements of the prior period were audited by a predecessor auditor.
ISA 510 – Requirements
1. Audit Procedures
1.1 Opening Balances
The ‘auditor’ shall READ the most recent Financial Statements, if any and the predecessor’s auditor report thereon.
|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:|
|(a) DETERMINING Whether the prior period’s closing balances have been correctly brought forward to the current period or where appropriate been restated;|
|(b) DETERMINING whether the opening balances reflect the application of appropriate accounting policies; AND|
|(c) PERFORMING one or more of the following:|
– Review the predecessor’s auditor working papers;
– Evaluating whether audit procedures performed in the current period provide evidence relevant to the opening balances; OR
– Performing specific audit procedures to obtain evidence regarding the opening balances.
1.2 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.
1.3 Relevant Information in the Predecessor’s Auditor 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 in the current period’s financial statements in accordance with ISA 315.
2. Audit Conclusions and Reporting
2.1 Opening Balances
If the ‘auditor’ 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 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, the auditor shall EXPRESS a QUALIFIED OPINION or an ADVERSE OPINION as per ISA 705.
2.2 Consistency of Accounting Policies
If the auditor CONCLUDES that:
- The current period’s accounting policies are not consistently applied; OR
- A change in accounting policies is not appropriately accounted for or not adequately presented or disclosed,
the ‘auditor’ shall EXPRESS a QUALIFIED OPINION or an ADVERSE OPINION as per ISA 705.
2.3 Modification to the Opinion in the Predecessor’s Auditor Report
If the predecessor auditor’s opinion included a MODIFICATION that remains relevant, the auditor shall MODIFY the auditor’s opinion on the current period’s financial statements in accordance with ISA 705 (Revised) and ISA 710.
The International Standard on Auditing ISA 510 ‘Initial Audit Engagements—Opening Balances’ DEALS with the auditor’s responsibilities relating to opening balances in an initial audit engagement.
[500-599] Audit Evidence → Articles @ EntreprenurialHub by Jhanzayb
Chartered Accountant (Institute of Chartered Accountants of Pakistan)
Bachelor of Accounting Honours (Asia e University, Malaysia)