Annual Audit Manual
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3053 Audit conclusions and reporting on opening balances
Apr-2018
In This Section
Reporting implications—insufficient evidence on opening balances
Reporting implications—opening balances contain a misstatement
Reporting implications of inconsistent accounting policies
Modification to the opinion in the predecessor auditor’s report
Overview
This topic explains:
- Reporting implications—insufficient evidence on opening balances
- Reporting implications—opening balances contain a misstatement
- Reporting implications of non-consistent accounting policies
- Modification to the opinion in the predecessor auditor’s report
CAS Requirement
If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening balances, the auditor shall express a qualified opinion or disclaim an opinion on the financial statements, as appropriate, in accordance with CAS 705. (CAS 510.10)
Refer to OAG Audit 8013 for guidance on modified audit opinion.
CAS Guidance
CAS 705 establishes requirements and provides guidance on circumstances that may result in a modification to the auditor’s opinion on the financial statements, the type of opinion appropriate in the circumstances, and the content of the auditor’s report when the auditor’s opinion is modified. The inability of the auditor to obtain sufficient appropriate audit evidence regarding opening balances may result in one of the following modifications to the opinion in the auditor’s report (CAS 510.A8):
a) A qualified opinion or a disclaimer of opinion, as is appropriate in the circumstances; or
b) Unless prohibited by law or regulation, an opinion which is qualified or disclaimed, as appropriate, regarding the results of operations, and cash flows, where relevant, and unmodified regarding financial position.
OAG Guidance
For further guidance on reporting implications relating to opening balances and split opinions, refer to OAG Audit 8020.
CAS Requirement
If the auditor concludes that the opening balances contain a misstatement that materially affects the current period’s financial statements, and the effect of the misstatement is not appropriately accounted for or not adequately presented or disclosed, the auditor shall express a qualified opinion or an adverse opinion, as appropriate, in accordance with CAS 705 (CAS 510.11).
If the auditor concludes that a material misstatement exists that affects the prior period financial statements on which the predecessor auditor had previously reported without modification, the auditor shall communicate the misstatement with the appropriate level of management and, unless all of those charged with governance are involved in managing the entity, those charged with governance and request that the predecessor auditor be informed. If the prior period financial statements are amended, and the predecessor auditor agrees to issue a new auditor’s report on the amended financial statements of the prior period, the auditor shall report only on the current period (CAS 710.18).
Refer to OAG Audit 8013 for guidance on modified audit opinion.
Refer to OAG Audit 2210 for guidance on communication with those charged with governance.
CAS Guidance
The predecessor auditor may be unable or unwilling to reissue the auditor’s report on the prior period financial statements. An Other Matter paragraph of the auditor’s report may indicate that the predecessor auditor reported on the financial statements of the prior period before amendment. In addition, if the auditor is engaged to audit and obtains sufficient appropriate audit evidence to be satisfied as to the appropriateness of the amendment, the auditor’s report may also include the following paragraph (CAS 710.A12):
As part of our audit of the 20X2 financial statements, we also audited the adjustments described in Note X that were applied to amend the 20X1 financial statements. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 20X1 financial statements of the company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 20X1 financial statements taken as a whole.
OAG Guidance
For further guidance on reporting implications on comparative information—first year audit, refer to OAG Audit 8020.
For further guidance on reporting implications relating to opening balances, refer also to OAG Audit 8020.
CAS Requirement
If the auditor concludes that (CAS 510.12):
(a) The current period’s accounting policies are not consistently applied in relation to opening balances in accordance with the applicable financial reporting framework; or
(b) A change in accounting policies is not appropriately accounted for or not adequately presented or disclosed in accordance with the applicable financial reporting framework,
the auditor shall express a qualified opinion or an adverse opinion as appropriate in accordance with CAS 705.
Refer to OAG Audit 8020 for guidance on modification to the opinion.
OAG Guidance
For further guidance on reporting implications relating to opening balances, refer to OAG Audit 8020.
CAS Requirement
If the predecessor auditor’s opinion regarding the prior period’s financial statements included a modification to the auditor’s opinion that remains relevant and material to the current period’s financial statements, the auditor shall modify the auditor’s opinion on the current period’s financial statements in accordance with CAS 705 and CAS 710 (CAS 510.13).
Refer to OAG Audit 8013 for guidance on modified audit opinion.
Refer to OAG Audit 8020 for guidance on comparative information.
CAS Guidance
In some situations, a modification to the predecessor auditor’s opinion may not be relevant and material to the opinion on the current period’s financial statements. This may be the case where, for example, there was a scope limitation in the prior period, but the matter giving rise to the scope limitation has been resolved in the current period (CAS 510.A9).
OAG Guidance
For example, if there was a scope limitation, such as one due to the inability to determine opening inventory in the prior period, we may not need to qualify or disclaim the current period’s audit opinion; as such a matter has been resolved in the current period.
For further guidance on reporting implications relating to opening balances, refer to OAG Audit 8020.