Your firm has been appointed as the auditors of Antarctica Limited for the year ended June 30, 2008. The Company was incorporated in the year 2000. Since then, its financial statements have been prepared in accordance with the approved accounting standards as applicable in Pakistan and have been audited by a highly reputable professional auditing firm. Since the previous auditors had never expressed a modified audit opinion, the audit team feels that there is no risk in respect of comparatives and accordingly did not perform any work in this respect.
Describe the auditor’s responsibility as regards the verification of opening balances and the steps that may be needed in the above situation.
Auditor’s responsibility as regards opening balances.
The auditor should obtain evidences to obtain reasonable assurance that:
– Opening balances do not contain misstatements that materially affect current period’s financial statements.
– Last year’s balances have been correctly brought forward
– Accounting policies have been consistently applied.
Steps need to be performed by the auditor:
– Review the predecessor auditor’s working papers
– If the auditor is not satisfied with the documentation reviewed, perform following procedures.
(a) Current assets and liabilities
Some audit evidence can ordinarily be obtained as par of current period’s audit procedures, for example:
– Collections of receivable and payment to accounts payable during current period will provide some evidence of the accuracy and completeness of receivable and payables at end of last year.
– Observing current physical inventory and working back to the opening inventory.
– Performing audit procedures to verify valuation of opening inventory.
(b) Non current assets and liabilities:
– Examination of accounting records of fixed assets, investments and long term debt will provide some evidence of opening balances.
– Confirmation may be obtain for opening balance of long term debts and investments.