Audit standards require that successor auditors communicate with predecessor aud
ID: 2420511 • Letter: A
Question
Audit standards require that successor auditors communicate with predecessor auditors prior to accepting an engagement. Predecessor auditors, however, cannot share confidential client information without the permission of the client. Once permission is granted, communication can begin and includes conversations about the client to help the successor auditor determine if client acceptance appears appropriate. For example, conversations will include discussion about management integrity, any disagreements with management, communication with those charged with governance, and the reason for the auditor change. Smith Jones, CPA, was the predecessor auditor for Awesome Adventures, Inc. Jones was told that the firm was terminated and Awesome Adventures was to retain Rich Fortune, CPA. Rich Fortune contacted Smith Jones in order to have a predecessor-successor conversation. Smith Jones indicated that Awesome Adventures was a long-time client of the firm and that the dispute which led to the termination of its services significantly revolved around audit fees. Jones indicated that management put unusual time deadlines on the CPAs, and they sometimes felt rushed to complete the audit. 1. What step did Rich Fortune fail to perform? 2. Rich Fortune appears to have asked Smith Jones about management integrity, disagreements with management, and the reason for the auditor change. What did Rich Fortune fail to ask Smith Jones? 3. What should Rich Fortune do with the information about the unnecessary time pressure?
Explanation / Answer
1) Rich Fortune failed to take the prior permission of the Awesome adventures befor asking about the management integrity, disagreements with management and the reason for the auditor change. Rich Fortune needs to communicate with the predecessor auditor but he should also take the permission of the client. He has not complied with the standards completely.
2) Rich Fortune failed to ask Jones if the clients acceptance is appropriate or not & what is the reason of Auditor`s change. Whether there is any material error, misstatements or fraud found in the statements of the entity. He has not complied with the Audit Standards.
3) Rich Fortune should clearly indicate in the audit engagement letter that there should be no time pressure regarding the completion of the Audit. He should discuss all these prior to the acceptance of the Audit with the management & those charged with governance.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.