Communications Between Predecessor and Successor Auditors

communication theory amidst forerunner and replacement insp el electroshock therapyroshock therapyors 155 AU Section 315 communications Between herald and substitute Auditors (Supersedes SAS no 7. ) Source SAS nary(prenominal) 84 SAS none 93. Effective with obligingness to stick startance of an betrothal afterward border 31, 1998, unless other than indicated. Introduction .01 This constituent runs advocate on chats between forerunner and transposition listeners when a trans build of tenders is in process or has taken place. It excessively suffers communications guidance when possible misstatements atomic number 18 discovered in ? ancial statements reported on by a pismireecedent attendant. This fraction applies whenever an independent meeter is depending esteem an assignment to analyse or re size up (see paragraph . 14 of this section) ? nancial statements in accordance with mainly true take stocking standards, and after much(prenominal)(p renominal)(prenominal) attender has been institute to carry out much(prenominal) an affaire. .02 For the purposes of this section, the term antecedent listener refers to an hearer who (a) has reported on the around youthful inspected accounted accounted ? nancial statements1 or was enmeshed to perform only did non yield do an take stock of the ? ancial statements2 and (b) has resigned, declined to stand for reappointment, or been noni? ed that his or her service live been, or whitethorn be, terminated. The term replacement attendant refers to an attendee who is passing yielding an liaison to examine ? nancial statements but has non communicated with the precursor attendant as earmarkd in paragraphs . 07 with . 10 and to an tender who has accepted such an intricacy. As amended, utile for canvasss of ? nancial statements for stages shutd stimulate on or after June 30, 2001, by direction on Auditing Standards no. 3. Change of Auditors .03 An t ender should not accept an engagement until the communications draw in paragraphs . 07 through and through . 10 have been evaluated. 3 However, an hearer whitethorn arrange a proposal for an audit engagement originally communicating with the harbinger listener. The meeter whitethorn want to talk over the likely 1 The provisions of this section argon not involve if the most recent audited ? nancial statements atomic number 18 more(prenominal) than two years antecedent to the first-class honours degree of the earliest period to be audited by the replacement attendant. There whitethorn be two trumpeter hearers the hearer who reported on the most recent audited ? nancial statements and the attender who was industrious to perform but did not complete an audit of whatsoever resultant ? nancial statements. As amended, impressive for audits of ? nancial statements for periods ending on or after June 30, 2001, by direction on Auditing Standards No. 93. 3 When the most recent ? nancial statements have been compiled or canvassed in accordance with the asseverations on Standards for Accounting and palingenesis Services, the accountant who reported on those ? ancial statements is not a herald attendee. Although not required by this section, in these circumstances the renewal meeter may ? nd the exits describe in paragraphs . 08 and . 09 white plagueful in find out whether to accept the engagement. AU 315. 03 156 The Standards of airfield sprain knob (for example, in a proposal) that espousal cannot be ? nal until the communications have been evaluated. .04 other communications between the replacement and herald auditors, described in paragraph . 11, are advisable to assist in the intend of the engagement.However, the timing of these other communications is more ? exible. The inheritor auditor may beginner these other communications either forward to word sense of the engagement or subsequent thereto. .05 When more tha n one auditor is considering accepting an engagement, the antecedent auditor should not be expected to be available to act to inquiries until a switch auditor has been selected by the prospective knob and has accepted the engagement subject to the evaluation of the communications with the precursor auditor as sufferd in paragraphs . 07 through . 10. 06 The initiative for communicating rests with the refilling auditor. The communication may be either compose or oral. Both the precursor and heir auditors should hold in con? dence teaching triumphed from each other. This obligation applies whether or not the permutation auditor accepts the engagement. communications forward Successor Auditor Accepts Engagement .07 examination of the herald auditor is a essential procedure beca drill the harbinger auditor may be able to provide reading that go out assist the substitution auditor in determining whether to accept the engagement.The alternate auditor should bear in m ental capacity that, among other things, the predecessor auditor and the leaf node may have dis concordd each(prenominal)what report principles, auditing procedures, or similarly signi? cant functions. .08 The switch auditor should indicate permission from the prospective knob to make an inquiry of the predecessor auditor introductory to ? nal acceptance of the engagement. withdraw as permitted by the Rules of the Code of master copy Conduct, an auditor is precluded from disclosing con? dential information controled in the course of an engagement unless the lymph node speci? cally bears.Thus, the substitution auditor should ask the prospective client to authorize the predecessor auditor to answer richly to the substitute auditors inquiries. If a prospective client ref accustoms to permit the predecessor auditor to respond or limits the response, the inheritor auditor should inquire as to the reasons and consider the implications of that refusal in deciding whethe r to accept the engagement. .09 The permutation auditor should make speci? c and sane inquiries of the predecessor auditor regarding matters that ordain assist the successor auditor in determining whether to accept the engagement.Matters subject to inquiry should embarrass info that top executive bear on the ace of management. Dis approvements with management as to news report principles, auditing procedures, or other similarly signi? cant matters. communications to those charged with governance regarding fraud and prohibited acts by clients. 4 4 Footnote deleted to re? ect conformist changes obligatory overdue to the consequence of averment on Auditing Standards No. 114. AU 315. 04 communication theory Between Predecessor and Successor Auditors 157 Communications to management and those charged with governance regarding signi? ant de? ciencies and material weaknesses in internal control. 5 The predecessor auditors understanding as to the reasons for the change o f auditors. The successor auditor may privation to consider other reasonable inquiries. Revised, whitethorn 2006, to re? ect conform changes necessity due to the takings of Statement on Auditing Standards No. 112. Revised, April 2007, to re? ect conformist changes prerequisite due to the issuance of Statement on Auditing Standards No. 114. . 10 The predecessor auditor should respond promptly and fully, on the basis of known facts, to the successor auditors reasonable inquiries.However, should the predecessor auditor decide, due to bizarre circumstances such as impending, threatened, or potential litigation disciplinary transactions 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. different Communications .11 The successor auditor should su pplicate that the client authorize the predecessor auditor to yield a fall over of the predecessor auditors functional text file.The predecessor auditor may wish to gather up a consent and book of facts letter from the client to put down this authorization in an driving force to bring low misunderstandings about the scope of the communications beingness authorized. 6 It is customary in such circumstances for the predecessor auditor to make himself or herself available to the successor auditor and make available for followup veritable of the on the job(p) cover. The predecessor auditor should determine which licking text file are to be made available for round off and which may be copied.The predecessor auditor should ordinarily permit the successor auditor to review on the job(p)(a)(a) papers, including documentation of planning, internal control, audit results, and other matters of continuing accounting and auditing signi? cance, such as the functional p aper abridgment 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 operative papers. 7 The close, if some(prenominal), to which a predecessor auditor permits glide path to the working papers is a matter of judgment.Successor Auditors Use of Communications .12 The successor auditor must concur suf? cient provide audit recount to consecrate a reasonable basis for expressing an mentation on the ? nancial statements he or she has been engaged to audit, including evaluating the consistency of the application of accounting principles. The audit evidence used in analyzing the seismic disturbance of the opening balances on the current-year ? nancial statements and consistency of accounting principles is a matter of professional judgment. such(prenominal) audit evidence may include the most recent audited ? ancial 5 peck section 316, condition of Fraud in a fi scal Statement Audit section 317, Il intelligent Acts by invitees and section 325, Communicating Internal Control tie in Matters Identi? ed in an Audit. Footnote revised, May 2006, to re? ect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 112. 6 Appendix A paragraph . 24 contains an informative client consent and acknowledgment letter. 7 Before permitting entrance money to the working papers, the predecessor auditor may wish to find a written communication from the successor auditor regarding the use of the working papers.Appendix B paragraph . 25 contains an demonstrative successor auditor acknowledgment letter. AU 315. 12 158 The Standards of Field hold out statements, the predecessor auditors report thereon,8 the results of inquiry of the predecessor auditor, the results of the successor auditors review of the predecessor auditors working papers relating to the most recently stainless audit, and audit procedures performed on the current periods transactions that may provide evidence about the opening balances or consistency.For example, evidence collect during the current years audit may provide information about the realizability and existence of receivables and take stock recorded at the beginning of the year. The successor auditor may in like manner concur appropriate auditing procedures to account balances at the beginning of the period under audit and to transactions in prior periods. As amended, effective for audits of ? nancial statements for periods ending on or after June 30, 2001, by Statement on Auditing Standards No. 93.Revised, manifest 2006, to re? ect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 105. . 13 The successor auditors review of the predecessor auditors working papers may affect the nature, timing, and extent of the successor auditors procedures with respectfulness to the opening balances and consistency of accounting principles. Howe ver, the nature, timing, and extent of audit work performed and the conclusions reached in some(prenominal) these areas are totally the right of the successor auditor.In reporting on the audit, the successor auditor should not make reference to the report or work of the predecessor auditor as the basis, in part, for the successor auditors own opinion. Audits of Financial Statements That Have Been Previously Audited . 14 If an auditor is asked to audit and report on ? nancial statements that have been antecedently audited and reported on (henceforth referred to as a reaudit), the auditor considering acceptance of the reaudit engagement is also a successor auditor, and the auditor who previously reported is also a predecessor auditor.In addition to the communications described in paragraphs . 07 through . 10, the successor auditor should state that the purpose of the inquiries is to retain information about whether to accept an engagement to perform a reaudit. .15 If the successor auditor accepts the reaudit engagement, he or she may consider the information obligeed from inquiries of the predecessor auditor and review of the predecessor auditors report and working papers in planning the reaudit. However, the information obtained from those inquiries and any review of the predecessor auditors report and working papers is not suf? ient to afford a basis for expressing an opinion. The nature, timing, and extent of the audit work performed and the conclusions reached in the reaudit are solely the indebtedness of the successor auditor perform the reaudit. .16 The successor auditor should plan and perform the reaudit in accordance with generally accepted auditing standards. The successor auditor should not assume responsibility for the predecessor auditors work or uncover a report that re? ects dual-lane responsibility as described in section 543, jump of Audit Performed by Other individual Auditors.Furthermore, the predecessor auditor is not a specialist a s de? ned in section 336, Using the serve of a Specialist, or an internal auditor as de? ned in section 322, The Auditors Consideration of the Internal Audit Function in an Audit of Financial Statements. .17 If the successor auditor has audited the current period, the results of that audit may be considered in planning and performing the reaudit of the 8 The successor auditor may wish to make inquiries about the professional genius and standing of the predecessor auditor.See section 543, Part of Audit Performed by Other Independent Auditors, paragraph . 10a. AU 315. 13 Communications Between Predecessor and Successor Auditors 159 predate period or periods and may provide audit evidence that is useful in performing the reaudit. Revised, March 2006, to re? ect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 105. . 18 If, in a reaudit engagement, the successor auditor is unavailing to obtain suf? cient appropriate audit evidence to express a n opinion on the ? nancial tatements, the successor auditor should qualify or disclaim an opinion because of the inability to perform procedures the successor auditor considers necessary in the circumstances. Revised, March 2006, to re? ect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 105. . 19 The successor auditor should request working papers for the period or periods under reaudit and the period prior to the reaudit period. However, the extent, if any, to which the predecessor auditor permits coming to the working papers is a matter of judgment. See paragraph . 11 of this section. ) . 20 In a reaudit, the successor auditor generally go out be unable to observe inventory or make physical counts at the reaudit date or dates in the manner controverted in paragraphs . 09 through . 11 of section 331, Inventories. In such cases, the successor auditor may consider the knowledge obtained from his or her review of the predecessor auditors wo rking papers and inquiries of the predecessor auditor to determine the nature, timing, and extent of procedures to be apply in the circumstances.The successor auditor performing the reaudit should, if material, observe or perform some physical counts of inventory at a date subsequent to the period of the reaudit, in connection with a current audit or otherwise, and apply appropriate tests of step in transactions. Appropriate procedures may include tests of prior transactions, reviews of records of prior counts, and the application of analytical procedures, such as gross pro? t tests. denudation of Possible Misstatements in Financial Statements inform on by a Predecessor Auditor . 21 If during the audit or reaudit, the successor auditor becomes aware of information that leads him or her to believe that ? nancial statements reported on by the predecessor auditor may require revision, the successor auditor should request that the client inform the predecessor auditor of the situati on and arrange for the three parties to discuss this information and attempt to resolve the matter.The successor auditor should communicate to the predecessor auditor any information that the predecessor auditor may need to consider in accordance with section 561, Subsequent Discovery of Facts Existing at the picture of the Auditors Report, which sets out the procedures that an auditor should follow when the auditor by and by discovers facts that may have affected the audited ? nancial statements previously reported on. 9 . 22 If the client refuses to inform the predecessor auditor or if the successor auditor is not satis? d with the resolution of the matter, the successor auditor should evaluate (a) possible implications on the current engagement and (b) whether to resign from the engagement. Furthermore, the successor auditor may wish to consult with his or her legal counsel in determining an appropriate course of further action. Effective Date .23 This section will be effective with respect to acceptance of an engagement after March 31, 1998. Earlier application is permitted. 9 See section 508, Reports on Audited Financial Statements, paragraphs . 70 through . 74, for reporting guidance. AU 315. 23 160 .24The Standards of Field devise Appendix A Illustrative Client Consent and Acknowledgment Letter 1. carve up . 11 of this section states, The successor auditor should request that the client authorize the predecessor auditor to allow a review of the predecessor auditors 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. The avocation letter is presented for illustrative purposes only and is not required by professional standards. Date alphabet Enterprises Address You have habituated your consent to allow name of successor certified public accountant ? rm, as succes sor independent auditors for rudiment Enterprises (first principle), attack to our working papers for our audit of the December 31, 19X1, ? nancial statements of ABC. You also have give your consent to us to respond fully to name of successor CPA ? rm inquiries. You understand and agree that the review of our working papers is undertaken solely for the purpose of obtaining an understanding about ABC and certain information about our audit to assist name of successor CPA ? m in planning the audit of the December 31, 19X2, ? nancial statements of ABC. enjoy con? rm your agreement with the front by signing and dating a copy of this letter and returning it to us. Attached is the form of the letter we will furnish name of successor CPA ? rm regarding the use of the working papers. real truly yours, Predecessor Auditor By ___________________________ Accepted ABC Enterprises By ___________________________ Date _________________ AU 315. 24 Communications Between Predecessor and Succe ssor Auditors .25 161 Appendix B Illustrative Successor Auditor Acknowledgment Letter . carve up . 11, footnote 7, of this section states, Before permitting irritate to the working papers, the predecessor auditor may wish to obtain a written communication from the successor auditor regarding the use of the working papers. The following letter is presented for illustrative purposes only and is not required by professional standards. Successor Auditor Address We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the December 31, 20X1, ? nancial statements of ABC Enterprises (ABC). We rendered a report on those ? ancial statements and have not performed any audit procedures subsequent to the audit report date. In connection with your audit of rudiment 20X2 ? nancial statements, you have requested ingress to our working papers ready in connection with that audit. ABC has authorized our ? rm to allow you to review tho se working papers. Our audit, and the working papers prepared in connection therewith, of ABCs ? nancial statements were not planned or conducted in contemplation of your review. Therefore, items of possible interest to you may not have been speci? cally addressed. Our use of professional judgment and the assessment of audit endangerment nd materiality for the purpose of our audit mean that matters may have existed that would have been assessed differently by you. We make no representation as to the suf? ciency or appropriateness of the information in our working papers for your purposes. We understand that the purpose of your review is to obtain information about ABC and our 19X1 audit results to assist you in planning your 19X2 audit of ABC. For that purpose only, we will provide you access code to our working papers that relate to that objective. Upon request, we will provide copies of those working papers that provide factual information about ABC.You agree to subject any suc h copies or information otherwise derived from our working papers to your normal policy for retention of working papers and protection of con? dential client information. Furthermore, in the event of a third-party request for access to your working papers prepared in connection with your audits of ABC, you agree to obtain our permission before voluntarily allowing any such access to our working papers or information otherwise derived from our working papers, and to obtain on our behalf any releases that you obtain from such third party.You agree to advise us promptly and provide us a copy of any subpoena, summons, or other court order for access to your working papers that include copies of our working papers or information otherwise derived therefrom. Please con? rm your agreement with the foregoing by signing and dating a copy of this letter and returning it to us. AU 315. 25 162 Very truly yours, Predecessor Auditor The Standards of Field Work By ___________________________ Accep ted Successor Auditor By ___________________________ Date __________________ Even with the clients consent, access to the predecessor auditors working papers may salvage be limited.Experience has shown that the predecessor auditor may be willing to grant broader access if given additional assurance concerning the use of the working papers. Accordingly, the successor auditor might consider agreeing to the following limitations on the review of the predecessor auditors working papers in order to obtain broader access The successor auditor will not comment, viva voce or in writing, to anyone as a result of the review as to whether the predecessor auditors engagement was performed in accordance with generally accepted auditing standards.The successor auditor will not provide expert evidence or litigation support services or otherwise accept an engagement to comment on issues relating to the quality of the predecessor auditors audit. The successor auditor will not use the audit pro cedures or results therefore enter in the predecessor auditors working papers as audit evidence in interpreting an opinion on the 19X2 ? nancial statements of ABC Enterprises, except as contemplated in Statement on Auditing Standards No. 84. The following paragraph illustrates the aboveBecause your review of our working papers is undertaken solely for the purpose described above and may not think of a review of all our working papers, you agree that (1) the information obtained from the review will not be used by you for any other purpose, (2) you will not comment, orally or in writing, to anyone as a result of that review as to whether our audit was performed in accordance with generally accepted auditing standards, (3) you will not provide expert testimony or litigation support services or otherwise accept an engagement to comment on issues relating to the quality of our audit, and (4) you will not use the audit procedures or results thereof documented in our working papers as audit evidence in rendering your opinion on the 19X2 ? nancial statements of ABC, except as contemplated in Statement on Auditing Standards No. 84. Revised, October 2000, to re? ect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 93. Revised, March 2006, to re? ect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 105. AU 315. 25