Page 131 - CA Final PARAM Digital Book.

As per SA 510 “Initial Audit Engagements – Opening Balances”, while conducting an initial audit
engagement, 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 in the current period’s financial statements or changes thereto are properly
accounted for and adequately presented and disclosed in accordance with the applicable
financial reporting framework.
When the financial statements for the preceding period were audited by another auditor, the
current auditor may be able to obtain sufficient appropriate audit evidence regarding opening
balances by perusing the copies of the audited financial statements.

Ordinarily, the current auditor can place reliance on the closing balances contained in the financial
statements for the preceding period, except when during the performance of audit procedures for
the current period the possibility of misstatements in opening balances is indicated.

For current assets and liabilities, some audit evidence about opening balances may be obtained as
part of the current period’s audit procedures, say, the collection of opening accounts receivable
during the current period will provide some audit evidence of their existence, rights and obligations,
completeness and valuation at the beginning of the period.

➢ Written representation

In addition, according to SA 580 “Written Representations”, the auditor may consider it necessary
to request management to provide written representations about specific assertions in the financial
statements; in particular, to support an understanding that the auditor has obtained from other
audit evidence of management’s judgment or intent in relation to, or the completeness of, a specific
assertion. Although such written representations provide necessary audit evidence, they do not
provide sufficient appropriate audit evidence on their own for that assertion.
Part III – Case Discussion
➢ In the given case, the management of Futura (P) Ltd. has restrained CA. Jack, its auditor, from
obtaining appropriate audit evidence for balances of Accounts Receivable outstanding as it is from
the preceding year. CA. Jack, on believing that the preceding year balances have already been
audited and on the statement of the management that there are no receipts and credits during the
current year, therefore excluded the verification of Accounts Receivable from his audit programme.

Part IV -- Conclusion
➢ Thus, CA. Jack should have requested the management to provide written representation for their
views and expressions; and he should also not exclude the audit procedure of closing balances of
Accounts Receivable from his audit programme. Consequently, CA. Jack shall also be held guilty for
professional misconduct for not exercising due diligence, or grossly negligence in the conduct of his
professional duties as per the Code of Ethics.

QNO Opening Inventory unaudited New Course – (SM23)
66.500 TITANIUM CNO-- SA510.040
CA M. Hussain is appointed auditor of a firm for year 2022-23 on 31st July 2022. The accounts of firm were
unaudited in year 2021-22. The firm had material inventories reflected in its financial statements even as
on close of 31st March 2022.

He is performing audit procedures, including attending physical inventory count as on 31st March 2023.
However, there is a lingering doubt in his mind regarding opening inventories reflected in financial
statements.

Does there exist any responsibility on his part in such a situation?
Answer SA 510 states that in conducting an initial audit engagement, one of the objectives 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. The auditor has to

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