Audit ProceduresAudit Procedures

Audit Procedures

7 Ordinarily, the sufficiency and appropriateness of the audit evidence the auditor needs to obtain regarding opening balances depends on such matters as the following:

• The accounting policies followed by the entity.
• Whether the prior period’s financial report was audited, and if so whether the auditor’s report was modified.
• The nature of the accounts and the risk of material misstatement in the current period’s financial report.
• The materiality of the opening balances relative to the current period’s financial report.

8 Under paragraph 5 of this Auditing Standard, the auditor needs to consider:

(a) whether opening balances reflect the application of appropriate accounting policies and that those policies are consistently applied in the current period’s financial report; and

(b) when there are any changes in the accounting policies or application thereof, whether the accounting policies are appropriate and properly accounted for and adequately presented and disclosed.

9 When the prior period’s financial report was audited by another auditor, the current auditor may be able to obtain sufficient appropriate audit evidence regarding opening balances by reviewing the predecessor auditor’s working papers. In these circumstances, under ASA 600 Using the Work of Another Auditor, the current auditor needs to consider the professional competence and independence of the predecessor auditor. If the prior period’s auditor’s report was modified, under ASA 710, the auditor needs to pay particular attention in the current period to the matter which resulted in the modification.

10 Prior to communicating with the predecessor auditor, under ASA 220 Quality Control for Audits of Historical Financial Information, the current auditor needs to consider the requirements of the applicable code of professional conduct of a professional accounting body.[1]

11 When the prior period’s financial report was not audited or when the auditor is not able to obtain sufficient appropriate audit evidence by using the audit procedures described in paragraph 9, the auditor ordinarily performs other audit procedures such as those discussed in paragraphs 12 and 13.

12 For current assets and liabilities some audit evidence can ordinarily be obtained as part of the current period’s audit procedures. For example, the collection (payment) of opening accounts receivable (accounts payable) during the current period will provide some audit evidence of their existence, rights and obligations, completeness and valuation at the beginning of the period. In the case of inventories; however, it is more difficult for the auditor to be satisfied as to inventory on hand at the beginning of the period. Therefore, additional audit procedures are ordinarily necessary such as observing a current physical inventory taking and reconciling it back to the opening inventory quantities, performing audit procedures on the valuation of the opening inventory items, and performing audit procedures on gross profit and cut off. A combination of these audit procedures may provide sufficient appropriate audit evidence.