SA 510 requires an auditor taking on an initial engagement to obtain sufficient appropriate evidence that opening balances do not contain misstatements that materially affect the current period's financial statements, that prior period closing balances have been correctly brought forward or restated where necessary, and that accounting policies reflected in the opening balances are consistently applied or that changes have been properly accounted for and disclosed — none of which is satisfied merely by the predecessor auditor having issued an unmodified opinion.
What has to be done, specifically
- 01Read the most recent financial statements and the predecessor's report, if anyIncluding any modification, emphasis of matter, or other matter paragraph — these flag exactly where opening balance risk is concentrated.
- 02Determine whether opening balances reflect appropriate accounting policiesAnd whether those policies are consistently applied in the current period, or changes are properly accounted for and disclosed.
- 03For current assets and liabilities, obtain audit evidence through current-period proceduresEvidence about opening receivables or payables can often be obtained through procedures performed on their collection or payment in the current period.
- 04For non-current items (fixed assets, long-term liabilities), different evidence is neededCurrent period procedures alone (like testing current period depreciation) will not independently verify an opening balance that could have been wrong for several years — specific procedures addressing the opening figure itself are usually required.
- 05Communicate with the predecessor auditor, where law and ethics permitReviewing the predecessor's working papers, where access is granted, is a recognised way to obtain evidence, but it is a source of evidence to evaluate, not a substitute for the incoming auditor's own conclusion.
If sufficient appropriate evidence over opening balances cannot be obtained, SA 510 requires a modification: an audit opinion qualified or disclaimed on that basis, specifically because of the inability to confirm opening balances — it is a real path to a modified opinion, not a theoretical one, on genuinely messy first-year engagements.
When opening balances turn out to be misstated
- If the misstatement affects the current period's financial statements materially, the opinion should be modified as appropriate under SA 705
- If it does not materially affect the current period, but the prior period's statements were materially misstated and not corrected, the effect on the current report still needs evaluation under SA 710's requirements for comparative information
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Audit documentationSA 710: auditing comparative information — corresponding figures vs comparative financial statementsA qualified prior-year opinion doesn't just disappear from the file this year. SA 710 requires it to be referenced again if the matter is still unresolved.
- Audit workflow & automationSA 210: what has to be agreed and documented before an audit startsSigning last year's engagement letter forward without re-reading it misses exactly what SA 210 requires you to check again each year.
- Audit documentationEngagement letters: what SA 210 requiresWhat an engagement letter must establish, when it needs renewing, and the gaps most often found on file inspection — undated letters and stale scope.
- Audit workflow & automationSA 320: materiality in planning and performing an auditOverall materiality and performance materiality are not the same number with a safety margin added — they answer two different questions.
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