[Anonymous]

Hey guys –

This forum is great. Finally got my act together and registered an account. I thought I’d post a quick question to help clarify an Audit concept:

So I have in my notes that before accepting an initial, first-time engagement, it is MANDATORY to ask the client (in the engagement letter) for permission to talk to the predecessor auditor (in order to inquire about mgt’s integrity, any past disagreements, why they left, look at work papers, etc.).

That’s all good and well, but then A4 came along (the worst) and I’m now getting tripped up on this concept. So my question is- what is the proper procedure if the client DENIES permission to talk to predecessor auditor? Should you withdraw, or can alternative procedures be performed? And if they do grant permission, to what extent must the auditor inquire with the predecessor? And what’s up with old work papers: is the new auditor even allowed to look at those?

Thanks for the help guys, it’s glad to have someone to talk to about this stuff (…no one in this starbucks seems to care about why I come in here every day and spread my legal pads all over the place…).

[Anonymous]

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 regarding fraud, illegal acts by clients, and internal-control-related matters.

The predecessor auditor's understanding as to the reasons for the change of auditors.

The successor auditor should request that the client authorize the predecessor auditor to allow a review of the predecessor auditor's working papers. The predecessor auditor may wish to request a consent and acknowledgment letter from the client to document this authorization in an effort to reduce misunderstandings about the scope of the communications being authorized. It is customary in such circumstances for the predecessor auditor to make himself or herself available to the successor auditor and make available for review certain of the working papers. The predecessor auditor should determine which working papers are to be made available for review and which may be copied. The predecessor auditor should ordinarily permit the successor auditor to review working papers, including documentation of planning, internal control, audit results, and other matters of continuing accounting and auditing significance, such as the working paper analysis of balance sheet accounts, and those relating to contingencies. Also, the predecessor auditor should reach an understanding with the successor auditor as to the use of the working papers. The extent, if any, to which a predecessor auditor permits access to the working papers is a matter of judgment.

[Anonymous]

Awesome. That was really clear, makes a lot of sense. So what would happen if the client refuses to let the new auditor talk with predecessor? Is that considered a scope limit (grounds for a disclaimer of opinion), or would the new auditor just refuse to take the engagement and withdraw completely? Thanks!

[Anonymous]

Technically, you are supposed to find out the reasons why and decide what to do from there but usually what ends up happening is you would withdrawal from the engagement. When the client refuses to let you speak with the predecessor auditor his integrity is questionable. We don't want to risk working with someone like this.

[Author]

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