Opening balances and changing SMSF auditors

Change in SMSF Auditor  - Opening Balance Question

With the potential change requiring funds to change SMSF auditors as a result of the APES 110 Code of Ethics and updated auditor independence guide, the issue of auditing Opening Balances is a topical issue for the industry.

As audits are opinion based, the approach may vary widely when reviewing the asset profile of each fund and the associated risks, although we have professional guidance through ASA510.

Auditing Standard ASA510 outlines the AASB requirements for auditor’s initial engagement in relation to opening balances.

The standard provides audit procedures for the auditor to obtain audit evidence about:

-        Whether the opening balances contain misstatements;

-        Whether the accounting policies reflected in the opening balances have been consistently applied in the current period’s financial report; and

-        Whether changes in the accounting policies have been properly accounted for and adequately presented and disclosed;

The Standard outlines the Audit procedures to be adopted including reading the previous financial report, and if possible to review the predecessor auditor’s working papers to obtain evidence, or to perform specific audit procedures to obtain evidence regarding the opening balances.

The professional statement further outlines that if the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening balances, a qualified opinion is to be expressed.

What does this all mean in practice, as potentially there could be many Part A qualifications in the first year of audit for the auditor.

The aim if possible is to have an orderly transition between auditors. Ideally this would include the previous auditor’s work papers. In reality this may not easily eventuate.

So the new auditor will need to gain an understanding of the assets and liabilities and modify their audit procedures to reach an opinion on whether the opening balances contain misstatements.. It may mean extending the audit procedure to include for example:

-        When establishing Bank balances for the current year end, to extend the procedure to include verification of balances for the previous year end;

-        When conducting title searches on property, to also note any changes in previous years;

-        When sampling listed shares to also include sampling the share quantity at the previous year end;

The approach by the auditor in relation to their audit procedure for opening balances is an important question to ask for trustees and their accountants/advisors and to discuss when you are looking at changing SMSF auditors.

If you’d like us to provide a quote or find out more about our audit options get in touch with us here.