ExpertHard1 markMultiple Choice
CPA · Question 53 · Area II: Risk Assessment
An auditor is auditing the opening balances of a new nonissuer client. The prior year financial statements were audited by a predecessor auditor who issued an unmodified opinion. Which of the following procedures is the auditor REQUIRED to perform regarding the opening balances?
An auditor is auditing the opening balances of a new nonissuer client. The prior year financial statements were audited by a predecessor auditor who issued an unmodified opinion. Which of the following procedures is the auditor REQUIRED to perform regarding the opening balances?
Answer options:
A.
Rely entirely on the predecessor auditor's opinion.
B.
Re-audit the prior year financial statements.
C.
Read the most recent financial statements and the predecessor auditor's report, and obtain evidence that opening balances do not contain material misstatements.
D.
Issue a disclaimer of opinion on the opening balances.
How to approach this question
Opening Balances (Initial Audit): You own the current year, which depends on the opening balance. You must verify them. Read the old report + Check the old papers (or test yourself).
Full Answer
C.Read the most recent financial statements and the predecessor auditor's report, and obtain evidence that opening balances do not contain material misstatements.✓ Correct
C
AU-C 510 requires the auditor to obtain sufficient appropriate audit evidence about whether the opening balances contain misstatements that materially affect the current period's financial statements. This usually involves reading the prior financials and reviewing the predecessor's working papers.
Common mistakes
Thinking you can just trust the old auditor (Option A) or that you have to re-do their work (Option B).
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