Actual audit lesson - opening balance test

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.