This section provides guidance on communications between predecessor and successor auditors when a change of auditors is in process or has taken place. It also provides communications guidance when possible misstatements are discovered in financial statements reported on by a predecessor auditor. This section applies whenever an independent auditor is considering accepting an engagement to audit or reaudit (see paragraph . 4 of this section) financial statements in accordance with generally accepted auditing standards, and after such auditor has been appointed to perform such an engagement. .02 For the purposes of this section, the term predecessor auditor refers to an auditor who (a) has reported on the most recent audited financial statements fn 1 or was engaged to perform but did not complete an audit of the financial statements fn 2 and (b) has resigned, declined to stand for reappointment, or been notified that his or her services have been, or may be, terminated.
The term successor auditor refers to an auditor who is considering accepting an engagement to audit financial statements but has not communicated with the predecessor auditor as provided in paragraphs . 07 through . 10 and to an auditor who has accepted such an engagement. [As amended, effective for audits of financial statements for periods ending on or after June 30, 2001, by Statement on Auditing Standards No. 93. ] Change of Auditors .03 An auditor should not accept an engagement until the communications described in paragraphs . 7 through . 10 have been evaluated. fn 3 However, an auditor may make a proposal for an audit engagement before communicating with the predecessor auditor. The auditor may wish to advise the prospective client (for example, in a proposal) that acceptance cannot be final until the communications have been evaluated. .04 Other communications between the successor and predecessor auditors, described in paragraph . 11, are advisable to assist in the planning of the engagement. However, the timing of these other communications is more flexible.
The Essay on Audit Engagement Exton Industries
To: Pat Johnson From: PWC Date: March 12, 2003 Subject: Assessment of Exton Industries, Inc. Dear Ms. Johnson: I have recently reviewed the Control Environment Questionnaire for Exton Industries, Inc. After evaluating the evidence collected by our staff member, I have come up with an assessment of the fraud risks. From the evidence gathered, I have concluded that Exton Industries has a weak ...
The successor auditor may initiate these other communications either prior to acceptance of the engagement or subsequent thereto. .05 When more than one auditor is considering accepting an engagement, the predecessor auditor should not be expected to be available to respond to inquiries until a successor auditor has been selected by the prospective client and has accepted the engagement subject to the evaluation of the communications with the predecessor auditor as provided in paragraphs . 07 through . 10. .06 The initiative for communicating rests with the successor auditor.
The communication may be either written or oral. Both the predecessor and successor auditors should hold in confidence information obtained from each other. This obligation applies whether or not the successor auditor accepts the engagement. Communications Before Successor Auditor Accepts Engagement .07 Inquiry of the predecessor auditor is a necessary procedure because the predecessor auditor may be able to provide information that will assist the successor auditor in determining whether to accept the engagement.
The successor auditor should bear in mind that, among other things, the predecessor auditor and the client may have disagreed about accounting principles, auditing procedures, or similarly significant matters. .08 The successor auditor should request permission from the prospective client to make an inquiry of the predecessor auditor prior to final acceptance of the engagement. Except as permitted by the Rules of the Code of Professional Conduct, an auditor is precluded from disclosing confidential information obtained in the course of an engagement unless the client specifically consents.
The Essay on Generally Accepted Auditing Standards
GENERALLY ACCEPTED AUDITING STANDARDS April 10, 1996 Generally Accepted Auditing Standards are those guidelines which auditors must adhere to while conducting an audit of a company's or government entity's financial statements. It must also be stated in the audit report that the audit was conducted following Generally Accepted Auditing Standards. This has been required since 1941 after the ...
Thus, the successor auditor should ask the prospective client to authorize the predecessor auditor to respond fully to the successor auditor’s inquiries. If a prospective client refuses to permit the predecessor auditor to respond or limits the response, the successor auditor should inquire as to the reasons and consider the implications of that refusal in deciding whether to accept the engagement. .09 The successor auditor should make specific and reasonable inquiries of the predecessor auditor regarding matters that will assist the successor auditor in determining whether to accept the engagement.
Matters subject to inquiry should include— •Information that might bear on the integrity of management. •Disagreements with management as to accounting principles, auditing procedures, or other similarly significant matters. •Communications to audit committees or others with equivalent authority and responsibility fn 4 regarding fraud, illegal acts by clients, and internal-control-related matters. fn 5 •The predecessor auditor’s understanding as to the reasons for the change of auditors. The successor auditor may wish to consider other reasonable inquiries.
The predecessor auditor should respond promptly and fully, on the basis of known facts, to the successor auditor’s reasonable inquiries. However, should the predecessor auditor decide, due to unusual circumstances such as impending, threatened, or potential litigation; disciplinary proceedings; or other unusual circumstances, not to respond fully to the inquiries, the predecessor auditor should clearly state that the response is limited. If the successor auditor receives a limited response, its implications should be considered in deciding whether to accept the engagement.