John Williams was assigned to an audit engagement, where there had not been an audit carried out by any public accounting firm in the preceding year. In conducting the audit, he did no testing of the beginning balance of accounts receivable, inventory or accounts payable, on the grounds that the audit report was being limited to the ending balance sheet, the income statement, and the cash flow statement. No comparative financial statements were to be issued.

REQUIRED

a. Explain the error in Williams's reasoning.

b. Suggest an approach Williams can follow in verifying the beginning balance in accounts receivable.

c. Why does the same problem not exist in the verification of beginning balances on continuing audit engagements?