Opening
balance test
Based on my
experienced during practical training, opening balance test is basically to
checked whether client have updated their opening balance in trial balance
according to previous year audited reports. It is client responsibilities to
make correction on misstatement found by auditor to keep the account in true
and fair amount. thus in opening balance, auditor will check the amount in
client, income statement, and statement of financial position similar with
amount in audited. Basically, practical trainee will check amount of total
expenses, total revenue, asset, current asset, liability and equity. Mostly in
audited reports all expenses will be categories into administrative, operating
and selling and distribution expenses thus you need to total up expenses into a
group similar with audited reports like for examples telephone expenses,
postage and courier, etc can be categories as administrative expenses. You need
to understand classification of expenses because some client doesn’t separate expenses
into group and not specify the content and purpose of the expenses, checking invoice
will take more time, so the best ways is to get the soft copy of working
reports of prior year audited financial statement, usually auditor will show
how they get the amount and which amount they add or subtract. Also you need to
refer adjustment journal in the same working paper, some cases client doesn’t open
up account because they deduct automatically to that account for example
provision of doubtful debt are not exist but amount account receivables are
lesser.
During the opening test balance
you either put PY which means agreed to prior year audited financial statement
or N1, reasons why is not the same as a notes. Notes reference are in
increasing order N1, N2, N3 …….and so on, justification is required to be
provided for every non equal amount. You also need to inform client if you
found misstatement so that they can make correction and provide you with new financial
statement, but remember don’t be to generous only allow them to make correction
1 to 2 times because it will waste your time.
After that, you need to write
notes, audit work done and conclusion. Notes are for justification of N1, N2
and so on. Notes need to justify the wrongdoing of client, amount affected and
with item related. For examples, amount in trial balance of client lower from
audited reports is because client automatically deduct provision of doubtful
debt in account receivable thus the amount are differ. Make justification as
simple as possible because manager usually prefer compact justification. You are
also not required to states the item due to N1 reference are in the same row
with the items. Audit work done is just PY – agreed to audited financial
statements as at (date). Than conclusion, either you satisfy with the amount or
not. For examples of statement of conclusion “ Based on audit work done the
amount is recorded in true and fair.
