Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

What should an auditor do if issues arise with opening balances during the audit of a new client?

1. Withdraw their opinion on all financial statements

2. Issue a disclaimer only on the opening balances

3. Provide a qualified opinion on all statements

4. Focus on the most recent financial statement only

The correct answer is: Withdraw their opinion on all financial statements

When an auditor encounters issues with opening balances during the audit of a new client, the best course of action would be to issue a disclaimer only on the opening balances. This is because issues with opening balances can indicate a lack of sufficient appropriate audit evidence regarding the accounting policies applied in the prior periods, the method of their application, or the appropriateness of the previous accounting estimates. Opening balances play a crucial role in providing a foundation for the current year's financial statements, as they affect many elements in the financial reporting. If the auditor is unable to obtain sufficient evidence to support the opening balances, it would warrant issuing a disclaimer specifically concerning those opening balances. This allows the auditor to signal that they have not been able to verify these amounts without affecting the opinion on the rest of the financial statements, provided they are otherwise acceptable and well-supported. When auditors withdraw their opinion on all financial statements, it may be an extreme measure not usually warranted by just issues arising from opening balances. A qualified opinion on all statements would indicate that there are pervasive issues affecting the entire set of financial statements, while focusing solely on the most recent statements neglects the importance of ensuring continuity and accuracy starting from the opening balances. Therefore, a disclaimer on the opening balances only provides clarity while maintaining