Initial audit engagement – definition
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.
ISA 510 Scope
- ISA 510 deals with the auditor’s responsibilities relating to opening balances in an initial audit engagement.
- In addition to financial statement amounts, 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 7101 also apply. ISA 3002 includes additional requirements and guidance regarding activities prior to starting an initial audit.
Effective Date of ISA 510 on and after 15 December 2009
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
- 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 appropriately accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework.
ISA 510 Requirements
- Read the most recent financial statement and report thereon.
- Determine whether the prior period’s closing balances have been correctly brought forward to the current period.
- Determine where restatement in opening balance is required, they are restated.
- Determining whether the opening balances reflect the application of appropriate accounting policies.
- Review the predecessor auditor’s working papers to obtain evidence regarding the opening balances.
- Evaluating whether audit procedures performed in the current period provide evidence relevant to the opening balances
- If misstatement detected communicate to those changed with governance.
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 (Revised) Audit Conclusions and Reporting
- If unable to obtain evidence regarding opening balances, express qualified or disclaim opinion
- 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.
- If accounting policies not consistently applied express qualified or adverse opinion.
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.