Initial engagements

In this lesson

1. 0:00 Initial engagements and opening balances
2. 0:40 Auditing opening balances procedures
3. 1:57 Reviewing prior year working papers
4. 2:57 Audit opinion implications for opening balances

About this lesson

Whether the previous year was unaudited or audited by another firm, you must perform additional procedures to ensure opening balances contain no material misstatements and that accounting policies have been consistently applied. The key approach is to compare this year's opening balances against last year's closing balances. If the prior year was audited, obtain and review the previous auditor's working papers to understand the work already completed. You'll need sufficient evidence to prove the opening balances are true and fair. Where evidence is unsatisfactory—particularly if the previous year wasn't audited—you must perform your own substantive testing. Your audit opinion depends on what you find. If you cannot obtain adequate evidence about opening balances, you may need to issue a qualified opinion for isolated issues or a disclaimer opinion if the problem is pervasive. If you discover a material misstatement affecting the current period, a qualified opinion applies for isolated matters, but an adverse opinion is required if the issue is widespread throughout the financial statements. This content is essential for AA (Audit and Assurance) and relates directly to forming your audit conclusions and determining the appropriate audit report opinion.

Duration: 4m