control
4. The predecessor auditor's understanding of the reasons for the change of auditors
(AU-C 210.A31)
The predecessor auditor should respond promptly, fully, and factually. However, if the predecessor decides, due to unusual circumstances such as impending, threatened, or potential litigation; disciplinary proceedings; or other unusual circumstances, not to respond fully, he or she should indicate that the response is limited. Also, if more than one auditor is considering accepting the audit, the predecessor auditor does not have to respond to inquiries until an auditor has been selected by the entity and has accepted the engagement. Any information exchanged between the predecessor and successor auditors should be considered confidential. (AU-C 210.A28-A30)
If the successor auditor receives a limited response, that auditor should consider the implications of the limited response in deciding whether to accept the engagement.
Recurring Audits
For a recurring audit, the auditor should evaluate whether the terms of the engagement need to be changed. The auditor should also remind the client about the existing terms of engagement.
Change in Terms
If the client requests a change in the terms, the auditor must ensure that there is a reasonable justification for the change. So, too, if prior to completion of an audit, the client requests a change to an engagement with a lower level of assurance, the auditor must be satisfied that a reasonable justification for doing so exists.
Certain factors may warrant a change in the terms of engagement for a recurring engagement. These might include, for example, changes in management or ownership, in legal or regulatory requirements, in the size of the entity, or in the financial reporting framework. (AU-C 210.A33) If the terms are changed, the auditor and management should document in writing the mutually agreed-upon change. (AU-C 210.13-16) If, however, the auditor concludes there is no reasonable justification for a change in terms and management does not allow the auditor to continue the original audit, the auditor must take these three steps:
1. Withdraw from the engagement.
2. Communicate the situation to those charged with governance.
3. Determine whether the auditor has any legal, contractual, or other obligation to report the circumstances to owners, regulators, or other parties.
(AU-C 210.17)
Illustration
Illustration 1. Example of an Audit Engagement Letter (from AU-C 210.A42)
AU-C 220 QUALITY CONTROL FOR AN ENGAGEMENT CONDUCTED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS
AU-C Original Pronouncements
Applicability
AU-C 220 addresses specific responsibilities of the auditor regarding quality control standards for an audit of financial statements. Quality control is the responsibility of the audit firm. AU-C 220 also addresses supervision of an audit.
AU-C 220 Definitions of Terms
Source: AU-C 220.09
Engagement partner. The partner or other person in the firm who is responsible for the audit engagement and its performance and for the auditor's report issued on behalf of the firm and who, when required, has the appropriate authority from a professional, legal, or regulatory body.
Engagement quality control review. A process designed to provide an objective evaluation, before the report is released, of the significant judgments the engagement team made and the conclusions it reached in formulating the auditor's report. The engagement quality control review process is only for those audit engagements, if any, for which the firm has determined that an engagement quality control review is required, in accordance with its policies and procedures.
Engagement quality control reviewer. A partner, other person in the firm, suitably qualified external person, or team made up of such individuals, none of whom is part of the engagement team, with sufficient and appropriate experience and authority to objectively evaluate the significant judgments that the engagement team made and the conclusions it reached in formulating the auditor's report.
Engagement team. All partners and staff performing the engagement and any individuals engaged by the firm or a network firm who perform audit procedures on the engagement. This excludes an auditor's external specialist engaged by the firm or a network firm.
The term engagement team also excludes individuals within the client's internal audit function who provide direct assistance on an audit engagement when the external auditor complies with the requirements of Section 610, Using the Work of Internal Auditors.6
Firm. A form of organization permitted by law or regulation whose characteristics conform to resolutions of the Council of the AICPA and which is engaged in the practice of public accounting.
Monitoring. A process comprising an ongoing consideration and evaluation of the firm's system of quality control, including inspection or a periodic review of engagement documentation, reports, and clients' financial statements for a selection of completed engagements, designed to provide the firm with reasonable assurance that its system of quality control is designed appropriately and operating effectively.
Network. An association of entities, as defined in ET Section 92, Definitions.
Network firm. A firm or other entity that belongs to a network, as defined in ET Section 92.
Partner. Any individual with authority to bind the firm with respect to the performance of a professional services engagement. For purposes of this definition, partner may include an employee with this authority who has not assumed the risks and benefits of ownership. Firms may use different titles to refer to individuals with this authority.
Personnel. Partners and staff.
Professional standards. Standards promulgated by the AICPA Auditing Standards Board or the AICPA Accounting and Review Services Committee under Rule 201, General Standards (ET sec. 201 par.01), or Rule 202, Compliance with Standards (ET sec. 202 par.01), of the AICPA Code of Professional Conduct, or other standards-setting bodies that set auditing and attest standards applicable to the engagement being performed and relevant ethical requirements.
Relevant ethical requirements. Ethical requirements to which the engagement team and engagement quality control reviewer are subject, which consist of the AICPA Code of Professional Conduct together with rules of applicable state boards of accountancy and applicable regulatory agencies that are more restrictive.
Staff. Professionals, other than partners, including any specialists that the firm employs.
Suitably qualified external person. An individual outside the firm with the competence and capabilities to act as an engagement partner (for example, a partner of another firm).
Objectives of AU-C Section 220
