VIETNAMESE STANDARDS ON AUDITING
STANDARD No. 510
INITIAL ENGAGEMENTS – OPENING BALANCES
(Issued in pursuance of the Finance Minister’s Decision No. 219/2000/QD-BTC dated 29 December 2000)
GENERAL PROVISIONS
01. This standard aims to prescribe the basic principles and procedures and guide the ways of applying the basic principles and procedures, which are related to the fiscal year- start’s balance when examining the financial report of the first year. This standard also requires the auditors to know uncertain events or existing commitments at the time of the beginning of the fiscal year in case of auditing the financial report of the first year.
02. When auditing the first year’s financial report, the auditors shall have to adequately gather appropriate auditing evidences in order to ensure that:
a) The year-start’s balance contains no errors which greatly affect the current year’s financial report;
b) The year-end balance of the previous fiscal year is accurately carried forward or properly re-classified in case of necessity;
c) The accounting regime has been consistently applied or the changes in the accounting regime have been adjusted in the financial reports and fully presented in the explanation of the financial report.
03. This standard shall apply to auditing the financial report of the first year and also to the first-year auditing of other financial information.
The auditors and auditing companies must abide by the provisions of this standard in the process of auditing the first year’s financial report.
The audited units (customers) and the parties using the auditing results must have necessary knowledge of the provisions of this standard for coordination in work with the auditing companies and auditors as well as in handling relations related to the first year’s audited financial report.
Terms used in this standard shall be understood as follows:
04. Opening balances: means the balance of the book-keeping account at the time of the beginning of the fiscal year. Opening balances is elaborated on the basis of the balance at the end of the previous fiscal year.
Opening balances is subject to the impact of:
a/ Economic events and operations in the previous years;
b/ The accounting regimes applied in the previous year.
05. The first year: means the year of auditing when the financial report of the previous year:
- Has not yet been audited; or
- Has been audited by other auditing companies.
CONTENTS OF THE STANDARD
The auditing procedures
06. The adequacy and appropriateness of the to be-gathered auditing evidences on Opening balances depend on:
- The accounting regime applied by units;
- The previous years financial report either audited or not yet audited and the content of the previous year’s auditing report (if already audited);
- The content and nature of accounts and risks with major errors affecting the current year’s financial report;
- The importance of Opening balances relating to the current years financial report.
07. The auditors must examine Opening balances already reflected according to the accounting regime applied in the previous year and applied consistently in the current year. If there are changes in the accounting regime, the auditors shall have to examine such changes as well as the implementation and presentation thereof in the current years financial report.
08. When the previous years financial report is audited by another auditing company, the auditors of the current year may gather the auditing evidences on Opening balances by way of examining the auditing files of the auditors of the previous year. In this case, the current years auditors should pay attention to the professional capability and independence of the previous years auditors. If the auditing report of the previous year’s auditors has not fully accepted the financial report, the current year’s auditors must pay attention to the reasons for non-total acceptance by the previous years auditors.
09. When the previous years financial report has not yet been audited or has already been audited but failed to satisfy the current years auditors, after filling in the procedures prescribed in Paragraph 08 but failing to adequately gather appropriate auditing evidences, the auditors shall have to carry out the auditing procedures specified in Paragraph 10 and Paragraph 11.
10. For Opening balances regarding the short-term debts and working assets, auditors may gather auditing evidences when carrying out the current years auditing procedures.
+ Example 1: "When examining the settlement of collectible and payable amounts in the current year, the auditors shall be able to gather the auditing evidences on Opening balances of collectible and payable amounts".
+ Example 2: "For goods in stock at the beginning of the year, the auditors shall have to carry out additional auditing procedures by way of supervising the actual inventory in the year or at the year-end, comparing the quantity, import and export value from the year-start to the time of actual inventory and find out the year-start’s goods in stock".
+ Example 3: "For bank deposit credit balance, collectible and payable amounts, the procedure for certification of Opening balances by the third person may be carried out".
The combination of these auditing procedures will provide auditors fully with appropriate auditing evidences.
11. For fixed assets, investment amounts and long-term debts, the auditors shall have to examine the vouchers proving Opening balances. In a number of certain cases, for investment amounts and long-term debts, the auditors may get the certification of Opening balances from the third party or carry out additional auditing procedures.
Conclusion and making of auditing reports
12. After carrying out the above-mentioned auditing procedures, if the auditors are still unable to adequately gather appropriate auditing evidences on Opening balances, the report on the auditing of the first year’s financial report shall be made according to one of the following types:
a/ A qualified opinion:
Example 1:
"We could not supervise the actual inventory of goods in stock on December 31, X1, as by that time we had not been appointed auditors. The additional auditing procedures also do not permit us to examine the truthfulness of the volume of goods in stock by above-said time.
To us, excluding impacts (if any) on the financial report for the above-said reasons, the financial report has reflected truthfully and reasonably the key aspects of the financial situation of the company by the time of December 31, X2 as well as the business results and sources of currency flow in the fiscal year ending on December 12, X2, in conformity with the current Vietnamese standards and accounting regimes and relevant law provisions".
b/ A disclaimer of opinion:
Example 2:
"We could not supervise the actual inventory of goods in stock on December 31, X1, as by that time we had not been appointed auditors. Due to the unit’s limitation we could not examine the goods in stock at the beginning of the year with the value of VND XX as well as we did not receive the certifications of debts to be recovered at the beginning of the year with the value of VND XY on the accounting balance sheet on December 31, X1. To us, because of the importance of these events, we refuse to give our opinions (or cannot give our opinions) on the unit’s financial report ending on December 31, X2".
13. Where Opening balances contains many errors which greatly affect the current years financial report, the auditors shall have to notify such to the director (or the head) of the unit and, after getting the consent of the director, to the previous years auditors (if any).
Where Opening balances contains many errors which greatly affect the current years financial report as mentioned above, but the audited unit has failed to treat and present them in the financial report, the auditors shall give the "Opinion of partial acceptance" or "Opinion of non-acceptance".
14. Where the current years accounting regime sees changes as compared with the previous years accounting regime and such changes have not been handled and fully presented in the explanation of the financial report, the auditor shall give the "Opinion of partial acceptance" or "Opinion of non-acceptance".
15. Where the previous years auditing report fails to give the " Opinion of total acceptance", the auditor shall have to examine the reasons therefor and its impact on the current years financial report. Example, due to the auditing scope limit or the inability to determine Opening balances of goods in stock but such does not greatly affect the current years financial report, the auditor may give the opinion of total acceptance. If the reasons for non-total acceptance of the previous years financial report remain and greatly affect the current years financial report, the auditor shall have to give proper opinion in the current years auditing report./.
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