An auditor should identify factors affecting acceptance before committing the firm, then reconsider relevant factors when deciding whether to retain an existing engagement. A signed agreement records the service promised; it cannot resolve doubts about management integrity or the firm's ability to perform that service.
A predecessor auditor is the prior auditor who reported on the latest audited statements, or accepted but did not complete the audit, and has departed or may be replaced. The prospective successor initiates communication with predecessor auditors before accepting the engagement to inform that decision.
The initial communication follows this sequence:
- Request management's permission for the predecessor to respond fully, because the predecessor remains subject to confidentiality obligations.
- Make specific inquiries relevant to acceptance after permission is obtained, including identified or suspected fraud and noncompliance with laws and regulations.
- Evaluate the responses, unresolved matters, and any limitations before deciding whether acceptance is appropriate.
- When the engagement is accepted, include the inquiries and their results in the audit documentation.
Common mistakes
- Silence treated as assent. A delivered letter with no demonstrated agreement leaves the understanding unresolved, even when every required provision appears.
- Title treated as authority. A controller's signature requires an authority assessment; the job title alone supplies neither acceptance nor rejection.
- Every change means replacement. For recurring nonissuer engagements, distinguish a new executive from an actual expansion of the contracted service.
Bottom line
- Acceptance and continuance depend on integrity, ethics, independence, competence, resources, service needs, and access to reliable information.
- The prospective successor initiates predecessor inquiries with management's permission before acceptance; later working-paper access serves a separate audit purpose.
- A common understanding requires appropriate agreeing parties, resolved expectations, and evidence of assent to complete written terms.
- Required nonissuer terms cover objective and scope, responsibilities, framework, inherent limitations, expected reports, and possible reporting differences.
Exam shortcut
Identify the regime first. An issuer audit committee and a recurring nonissuer client have different annual-letter requirements. Mark the exact defect in a draft: missing scope, shifted responsibility, restricted access, guaranteed outcome, or absent agreement. Match the correction to that defect. For signer questions, look for delegated authority and governance acknowledgment before relying on the person's title. For change requests, separate the stated reason from unresolved evidence.
The full lesson (about 5,212 words, 35 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- I.D2
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