Page 129 - CA Final PARAM Digital Book.

Part 4- SA 510

QNO Audit Procedures for Opening Balance Old Course – (N04E, N09E, N13R, N14R, M15E, M16M, N16M,
66.000 TITANIUM CNO--SA510.020/SA510.040 SM17, PM17, N17R, M18M, N18R, N19M, N19E, SM21)

a) What are ‘Initial Audit Engagements’?

(b) In an initial audit engagement, the auditor will have to satisfy about the sufficiency and
appropriateness of ‘Opening Balances’ to ensure that they are free from misstatements, which may
materially affect the current financial statements. Lay down the audit procedure, you will follow in
cases: -
(i) when the financial statements are audited for the preceding period by another auditor; and
(ii) when financial statements are audited for the first time.

(c) If, after performing the procedure, you are not satisfied about the correctness of ‘Opening Balances’;
what approach you will adopt in drafting your audit report in two situations mentioned in (b) above?
OR
You have been appointed as the auditor of Top Health Ltd. for 2017-18 which was audited by CA
Trustworthy in 2016-17. As the Auditor of the company state the steps you would take to ensure that
the Closing Balances of 2016-17 have been brought to account in 2017-18 as Opening Balances and
the Opening Balances do not contain misstatements.
Answer Part I -- Relevant Standards & Laws
▪ SA 510 “Initial Audit Engagements – Opening Balances

Part II -- Requirements of Relevant Standards & Laws
➢ Initial Audit Engagement: - Prior period FST Not Audited or Audited by Predecessor
Auditor
As per SA 510 “Initial Audit Engagements - Opening Balances”, initial audit engagement is an
engagement in which either:
• The financial statements for the prior period were not audited; or
• The financial statements for the prior period were audited by a predecessor auditor.

➢ Audit Procedures: -
• Check whether closing balances have been correctly brought forward from last year
ledger. / Agree opening balance with the most recent financial statements / Read
predecessor audit report if any. (If any modification it should be marked as RMM)
/ If any adjustment is shown as prior period item, trace to previous period
documents. / Whether audit procedures performed in the current period provide
evidence relevant to the opening balances
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:
• Determining whether the prior period’s closing balances have been correctly
brought forward to the current period or, when appropriate, any adjustments have
been disclosed as prior period items in the current year’s Statement of Profit and
Loss;
• 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.
• Performing one or more of the following:
o Where the prior year financial statements were audited, perusing the
copies of the audited financial statements including the other relevant
documents relating to the prior period financial statements;

o Evaluating whether audit procedures performed in the current period
provide evidence relevant to the opening balances; or
o Performing specific audit procedures to obtain evidence regarding the
opening balances.

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