• Explanation

Before accepting a new engagement, an auditor should ask the client to authorize the predecessor auditorAn auditor who reported on the prior period financial statements or started but did not complete the current audit and who is no longer engaged by the client. to respond to inquiries and allow the successor An auditor who is considering accepting an audit engagement after another auditor (ie, predecessor auditor) has reported on prior period financial statements or did not complete a current audit and is no longer engaged by the client. to review the predecessor's working papersAn auditor's records of the procedures applied, the tests performed, the information obtained, and the pertinent conclusions reached in the engagement. Examples of working papers are audit programs, analyses, memoranda, letters of confirmation and representation, and schedules or commentaries prepared or obtained by the auditor. In addition to hard copies, working papers may be in the form of data stored on tapes, films, or other media..

The successor auditor uses the information gained to determine whether to accept the initial audit engagement. For example, an auditor may decide not to accept an initial audit engagement if the prior audit determined that the highest levels of management were involved in fraud.

By contrast, an engagement letter A document signed by both the client and the accountant outlining the objectives, responsibilities, and terms associated with a specific engagement. stipulates the terms of an engagement, including each party's responsibilities, the scope of the audit, and fees. Although the auditor's engagement letter for the current year is crucial to accepting the engagement, the predecessor's engagement letter would be of no use to the current year's auditor.

Note: Because the predecessor's working papers remain the predecessor's property, management can only authorize, not require, the predecessor to provide them to the successor. However, the AICPA Code of Professional Conduct requires CPAs to provide reasonable professional cooperation in most circumstances, including allowing a successor to review working papers.

Things to remember:
Before accepting a new engagement, an auditor should ask the client to authorize the predecessor auditor to respond to inquiries and allow the successor to review the predecessor's working papers. The purpose of this request is to help the auditor determine whether to accept the initial audit engagement. Reviewing the predecessor's engagement letter would not be helpful in making that decision.

Lecture References :

• AUD 1.03 : Audit Basics & Engagement Planning: Engagement Acceptance