The objective of ISA 510 is to outline the auditor’s responsibilities in terms of whether the opening balances in initial engagements contain material misstatements which may affect the current period’s financial statements and whether the entity’s accounting policies have been consistently applied in the current period or whether any changes in accounting policy have been properly accounted for.

ISA 510 defines opening balances as:

Those 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.

[ISA510.4 (b)]

Initial engagements primarily arise for two reasons:

  • The audit client changes auditor.
  • The audit client is no longer eligible to apply audit exemption in accordance with legis-lative or other regulatory requirements — for example, banks and financiers may impose a mandatory requirement for audit despite the entity being eligible for audit exemption.

Instances such as the above require the auditor to evaluate the risk of material misstatement in relation to the opening balances and to adopt audit procedures to reduce this risk to an acceptably low level.


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