".11 Before accepting an engagement for an initial audit, including a reaudit engagement, the auditor should request management to authorize the predecessor auditor to respond fully to the auditor's inquiries regarding matters that will assist the auditor in determining whether to accept the engagement. If management refuses to authorize the predecessor auditor to respond, or limits the response, the auditor should inquire about the reasons and consider the implications of that refusal in deciding whether to accept the engagement.
.12 The auditor should evaluate the predecessor auditor's response, or consider the implications if the predecessor auditor provides no response or a limited response, in determining whether to accept the engagement."
When considering accepting a new audit engagement, the Auditor must speak with the predecessor auditor regarding matters that will help him decide whether to accept the client or not. Typically, the Auditor will submit a proposal to the potential client, but this proposal will include a statement that the proposal is not final until the Auditor has held discussions with and evaluated the responses of the predecessor auditor. If management refuses to allow the Auditor to hold discussions with the predecessor auditor, the Auditor should consider the implications of that refusal when deciding whether to accept the engagement.
The predecessor auditor is not required to speak to every proposing audit firm; instead the potential client should accept a single Audit firm, so that the predecessor auditor only has to speak to one Auditor regarding the engagement.
Professional standards require an Auditor to keep confidential any information about the client or the engagement unless given authorization from management. As such, the new Auditor will prepare a letter for management to sign and send to the predecessor auditor that gives the predecessor auditor permission to provide information to the new Auditor; and the new Auditor should hold those discussions in confidence.
Professional standards require auditors to cooperate with each other, which provides the basis for the predecessor auditor being expected to cooperate with the inquiries. If he is not able to because of litigation or other matters, he must specifically say that the response is limited and for what reasons.
Typical talking points of the discussion between the predecessor auditor and the new auditor include:
- Information that might bear on the integrity of management
- Disagreements with management about accounting policies, auditing procedures, or other similarly significant matters
- Communications to those charged with governance regarding fraud and noncompliance with laws or regulations by the entity
- Communications to management and those charged with governance regarding significant deficiencies and material weaknesses in internal control
- The predecessor auditor's understanding about the reasons for the change of auditors
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