SA 510 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
SA 510 applies when an auditor takes up a company for the first time, either because the previous year was not audited or because a different firm audited it. The new auditor cannot simply start from this year's balances; the standard says what must be checked about the balances brought forward and what happens to the opinion if that cannot be done.
SA 510, as effective for audits of financial statements for periods beginning on or after 1 April 2010, covers every initial engagement. ICAI may revise standards, so check icai.org for the current text. Companies changing auditors can ease the first year with well-kept books of accounts and tied-out opening balances.
In a first audit, the auditor must obtain sufficient appropriate evidence that opening balances are not materially misstated and that accounting policies are applied consistently. The auditor reads the latest financial statements and the predecessor auditor's report, checks the carry-forward, and does extra work on areas like inventory. If evidence on opening balances cannot be obtained, the opinion is qualified or disclaimed; a material misstatement left uncorrected leads to a qualified or adverse opinion.
Scope and objective (paragraphs 1-4)
"Opening balances" means balances at the start of the period, resting on the prior period's closing balances, past transactions and accounting policies. They also include matters needing disclosure that existed at the start, such as contingencies and commitments (paragraphs 1 and 4(b)). Where comparative figures are presented, SA 710 also applies, and SA 300 covers planning activities before an initial audit begins.
An "initial audit engagement" is one where the prior period was not audited, or was audited by a predecessor auditor, meaning an auditor from a different firm who has been replaced (paragraph 4).
The auditor's objective is to obtain evidence on two points: whether opening balances contain misstatements that materially affect the current period's financial statements, and whether the accounting policies behind them are consistently applied this year, or changes are properly accounted for and disclosed (paragraph 3).
Procedures on opening balances (paragraphs 5-7)
| Step | What the auditor does | Paragraph |
|---|---|---|
| Read | The most recent financial statements and the predecessor's report, for information relevant to opening balances and disclosures | 5 |
| Carry-forward | Checks that prior closing balances were correctly brought forward, or that adjustments are disclosed as prior period items in the current year's Statement of Profit and Loss | 6(a) |
| Policies | Checks that the opening balances reflect appropriate accounting policies | 6(b) |
| Evidence | Does one or more of: perusing the audited prior-year statements and related documents; evaluating whether current-year procedures give evidence on opening balances; performing specific procedures | 6(c) |
| Misstatement found | Performs extra procedures to measure the effect on the current year and communicates to management and those charged with governance under SA 450 | 7 |
The extent of work depends on the accounting policies, the nature of the balances and the risks, how large the opening balances are compared with the current statements, and whether the prior year was audited and with what opinion (A1).
Where a predecessor audited
The new auditor may be able to get enough evidence by perusing the copies of the audited statements and supporting schedules. Ordinarily the closing balances in the prior statements can be relied on unless current-year work suggests opening misstatements (A2). This part of the Indian text differs from the international standard: the international text lets the new auditor review the predecessor's working papers, but because of the confidentiality obligations in the Chartered Accountants Act, 1949 (as the SA 510 note explains), the Indian text asks for perusal of the audited statements and other relevant documents instead. For the communication that takes place when an auditor changes, see our posts on previous auditor communication and Clause 8 of the First Schedule.
Current-year work as evidence
For current assets and liabilities, current-year work gives some evidence. Collecting opening receivables or paying opening payables during the year says something about existence, rights and obligations, completeness and valuation at the start (A3). Inventory is different: the work on closing inventory tells little about what was on hand at the start, so the auditor may need to observe a current count and reconcile it to opening quantities, test the valuation of opening items, or test gross profit and cut-off (A3).
For non-current items such as fixed assets, investments and long-term debt, the auditor can examine underlying records, and may confirm long-term debt and investments with third parties (A4). Third-party confirmations follow SA 505.
Consistency of accounting policies (paragraph 8)
The auditor needs evidence that policies embedded in the opening balances have been applied consistently in the current year and that any change in policy has been correctly accounted for and presented and disclosed under the applicable framework.
Predecessor's modified opinion (paragraph 9)
If the predecessor's report on the prior period was modified, the new auditor evaluates the matter behind the modification when assessing risks of material misstatement under SA 315 for the current year.
Conclusions and reporting (paragraphs 10-13)
| Situation | Effect on the opinion | Paragraph |
|---|---|---|
| Cannot get enough evidence on opening balances | Qualified opinion or disclaimer, as appropriate | 10 |
| Opening balances materially misstated and not properly accounted for or disclosed | Qualified or adverse opinion | 11 |
| Policies not consistently applied, or change in policy not properly accounted for or disclosed | Qualified or adverse opinion | 12 |
| Predecessor's modification still relevant and material to the current period | Modify the current opinion | 13 |
The modifications follow SA 705. A5 notes that, unless law prohibits it, an opinion may be qualified or disclaimed on the results of operations and cash flows while remaining unmodified on the state of affairs. A6 gives the example of a prior-year scope limitation that has since been resolved, in which case the earlier modification may no longer matter for the current period. The appendix to the standard contains illustrative reports with modified opinions; it shows a qualification where the auditor was appointed after the start of the year and could not observe the opening inventory count, and it carries an "Other Matter" statement about the earlier audit by another auditor.
Illustrative example
Greenfield Foods Pvt Ltd is an invented company; all figures are illustrative. A new firm is appointed in September and the year ended on 31 March, so the opening inventory count was never observed. The firm reads the prior-year audited statements and the predecessor's report, which was unmodified. It checks that closing balances of the prior year agree with the opening ledger. For receivables, it uses collections in April and May. For opening inventory valued at Rs 1.8 crore, it reviews the prior count records, tests the year's purchases and sales and examines gross profit and cut-off. If those procedures give enough comfort, the opinion is unaffected. If they do not, the firm qualifies the opinion on the results and cash flows and explains why in the basis paragraph.
Need help with a change of auditor?
Companies that appoint a new auditor can save time by keeping the previous year's audited statements, schedules, reconciliations and stock records ready. TaxClue's books of accounts compliance support can help you tie closing balances to opening balances and prepare the schedules a first-year auditor will ask for.
Key takeaways
- A first audit means extra work on opening balances and policy consistency.
- The new auditor reads the latest statements and the predecessor's report.
- Inventory usually needs additional procedures because current-year work says little about opening stock.
- Not getting evidence on opening balances means a qualified opinion or a disclaimer.
- A material uncorrected misstatement in opening balances means a qualified or adverse opinion.
Read next
- SA 300: planning an audit
- SA 705: modifications to the opinion
- SA 710: comparative information
- SA 505: external confirmations
Disclaimer: Based on the Standards on Auditing and quality standards issued by the Institute of Chartered Accountants of India, in the versions named in the article, and ICAI's announcement of 31 March 2026 on SQM 1 and SQM 2, as consulted on 3 October 2026. ICAI revises standards from time to time; check the current text and effective dates on icai.org. This article is general information, not legal advice; check the official text before acting.