Skip to content

CA Intermediate · Auditing and Ethics · Audit Strategy, Audit Planning and Audit Programme

Gupta & Co. is appointed auditor of Bharat Steels Ltd. after the previous auditor, Verma & Co., completed the term. For a first-time audit engagement, which activity should the incoming auditor perform as part of audit planning under SA 300 and SA 510 (Initial Audit Engagements—Opening Balances)?

The incoming auditor must perform procedures to obtain sufficient appropriate evidence that opening balances do not contain misstatements materially affecting the current period. SA 510 requires this, including checking brought-forward balances and the predecessor's report, rather than accepting balances blindly or relying only on management's certificate.

  1. AAccept the opening balances as correct since they were audited by the predecessor and no procedures are needed
  2. BPerform the procedures required to obtain sufficient appropriate audit evidence that opening balances do not contain misstatements materially affecting the current period's financial statementsCorrect
  3. CAsk the management to certify the opening balances and rely solely on that certificate
  4. DWithdraw from the engagement if the predecessor auditor issued a qualified opinion

Explanation

SA 510 requires the auditor to obtain sufficient appropriate audit evidence about whether opening balances contain misstatements that materially affect the current period's statements. This includes reading the most recent financial statements and the predecessor's report, and checking that closing balances were correctly brought forward. Blind acceptance or reliance solely on a management certificate is insufficient, and a qualified predecessor opinion does not itself require withdrawal.

Did you get it right without looking?

One question tells you little. A timed set on Audit Strategy, Audit Planning and Audit Programme shows your real accuracy, how long you take and where you lose marks.

Practise Audit Strategy, Audit Planning and Audit ProgrammeFree diagnostic mock

More Audit Strategy, Audit Planning and Audit Programme questions