This 20-mark question was based on Brown Co and tested candidates’ knowledge of opening balances, placing reliance on the work of an expert and audit reports.

Part (a) for 4 marks required a description of the procedures an auditor should undertake in confirming opening balances for a new audit client and the audit report implications if opening balances could not be confirmed or if they contained misstatements. This question was unrelated to the scenario, and was not answered well by many candidates.

Most candidates were able to recommend agreeing the opening balances to the prior year closing balances. However, often the source of the closing balances was missing, i.e. the prior year financial statements, and so only ½ marks were gained.

A significant number thought that the opening balances needed to be audited again in detail and recommended procedures such as bank confirmations and receivables circularisation. Others did not read the requirement carefully and so did not appreciate that this was a new engagement for the firm, hence there were no prior year audit files for the firm to look at.

In addition some candidates suggested obtaining a written representation from management. Candidates seem to believe that a written representation is appropriate evidence for each and every audit situation, it is not.