SAS No. 21 Initial Engagements - Opening Balances

Status

Revised by Auditing Standards Committee in Taiwan on 2 November, 1999.

Summary

For initial audit engagements, the auditor should obtain sufficient appropriate audit evidence that:

• The opening balances do not contain misstatements that materially affect the current period’s financial statements;
• The prior period’s closing balances have been correctly brought forward to the current period or, when appropriate, have been restated; and
• Appropriate accounting policies are consistently applied or changes in accounting policies have been properly accounted for and adequately presented and disclosed.

Opening balances means those account balances which 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 of prior periods; and
• Accounting policies applied in the prior period.
• Contingencies or commitments existed at the end of the prior period.

The sufficiency and appropriateness of the audit evidence the auditor will need 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 statements were audited, and if so whether the auditor’s report was modified.
• Whether the prior period’s financial statements were prepared in accordance with generally accepted accounting principles.
• The nature of the accounts and the risk of material misstatement in the current period’s financial statements.

If the auditor is unable to obtain sufficient appropriate audit evidence concerning opening balances, the auditor’s report should include:

• A qualified opinion, or
• A disclaimer of opinion.

If the effect of the misstatement is not properly accounted for and adequately presented and disclosed, the auditor should express a qualified opinion or an adverse opinion, as appropriate. If the current period’s accounting policies have not been consistently applied in relation to opening balances and if the change has not been properly accounted for and adequately presented and disclosed, the auditor should express a qualified opinion or an adverse opinion as appropriate. However, if a modification regarding the prior period’s financial statements remains relevant and material to the current period’s financial statements, the auditor should modify the current auditor’s report accordingly.

Effective date

This Statement is effective for audit of financial statements with fiscal years ending on or after 31 December, 1999.