Audit and Assurance · Obtaining, accepting and continuing audit engagements

Continuing Engagements and Withdrawal or Resignation of the Auditor

Updated 11 October 2026 · Fact-checked

Each year the auditor reviews whether to continue with a client by checking ethics, independence, competence, resources, integrity and fee issues. If the auditor cannot continue, they resign or are not reappointed. They must follow the law, consider confidentiality, communicate with the successor and deal with a statement of circumstances where required.

Understand Continuing Engagements and Withdrawal or Resignation

Accepting a client is not a one-off decision. Risks change. Management may change, the business may move into new areas, fees may become overdue, or a threat to independence may appear. So the audit firm reviews the relationship before each new audit and whenever something significant happens.

The usual continuance review factors are: integrity of management and those charged with governance; any new ethical or independence threats; whether the firm still has the competence, time and resources; whether the client's risk has increased beyond what the firm can manage; any legal or regulatory issues such as suspected money laundering; and the fee position, including unpaid fees and limits on scope. A pattern of disputes, restrictions on access or lack of cooperation is a red flag.

If the review shows a problem, the firm first asks if it can be fixed. A threat to independence may be removed by a safeguard, such as rotating the engagement partner or using a second partner review. If the problem cannot be reduced to an acceptable level, the firm should not continue.

Resignation is the auditor's decision to leave before the term ends. Removal is the shareholders' decision to end the appointment, usually by ordinary resolution under company law. Not being reappointed means the term simply ends. In an exam, keep these apart. The auditor chooses to resign. The company removes. In each case the auditor must act professionally and in line with local law.

On leaving, the auditor should consider whether any statement of the circumstances connected with the departure must be given to the company, and in some jurisdictions to the regulator. The auditor should also think about confidentiality. The client's permission is needed before the auditor discloses information to the proposed successor, unless the law requires or allows it. The outgoing auditor should not simply walk away. Professional courtesy and handover of appropriate information matter.

Key rules to remember

Continuance review factors: Integrity + Ethics/independence + Competence and resources + Risk + Legal issues + Fees; A memory list, not a calculation. Use it to structure any continuance answer.
Resignation vs removal: Resignation = auditor's choice; Removal = members' decision (usually by ordinary resolution); Exact procedure depends on the local law named in the question.
Departure duties: Statement of circumstances + Client consent for disclosure + Handover to successor + Documentation; Apply to any departure. Disclosure without consent needs legal authority or a public duty.

How to solve Continuing Engagements and Withdrawal or Resignation questions

Use this method for any scenario about whether to continue, resign or accept a removal.

1Identify what is happening: periodic review, a specific event, resignation, removal or non-reappointment.
2List the facts that bear on the continuance factors: integrity, independence, competence, resources, risk, law and fees.
3For each fact, say why it matters to the audit, not just that it exists.
4Decide if any threat can be reduced by a safeguard. Name the safeguard and say whether it is enough.
5Conclude clearly: continue, continue with safeguards, or resign or decline reappointment.
6If leaving, set out the duties: written notice or statement of circumstances, handling confidentiality and client consent, communication with the successor and with those charged with governance, and documentation.
7Keep to the mark allocation. Make one point per mark and tie it to the scenario.

Quickest way: Factor scan then action

When to use it: Use in a short Section A or OT case question when time is tight.

Scan the scenario for red flags: dishonest management, unpaid fees, new relationships, lack of staff.
Match each flag to a factor: integrity, independence, competence, risk or fees.
Ask: can a safeguard fix it? If not, resignation is the answer.
Check the wording: who decides? Auditor means resign. Members means removal.
For departure questions, think consent, statement of circumstances and successor handover.

Common mistakes in Continuing Engagements and Withdrawal or Resignation

Saying the auditor can disclose everything to the new auditor freely.
Students focus on helping the successor and forget confidentiality.
Fix: State that client permission is needed unless law requires or allows disclosure.
Treating resignation and removal as the same.
Both end the appointment, so they look alike.
Fix: Say who decides. The auditor resigns. The members remove.
Resigning at the first sign of a problem.
Students assume any threat means leaving.
Fix: Consider safeguards first. Resign only if the threat cannot be reduced to an acceptable level.
Listing continuance factors without linking them to the scenario.
Memorised lists feel safe.
Fix: Quote the fact, name the factor and explain the risk in one sentence.
Forgetting to mention the statement of circumstances or the reason for leaving.
Students stop at the decision.
Fix: Always add the duties on departure: statement, communication, handover and documentation.

Worked examples

Example 1

Mellow Co has been an audit client of your firm for four years. This year the finance director has been dismissed after a dispute and the new management refuses to let you see board minutes. Fees of $80,000 for last year are still unpaid. Discuss whether your firm should continue as auditor.

Show the solution

Identify the factors: management integrity, restriction on access, and unpaid fees.
Restricted access to board minutes is a limitation on scope. It may stop the auditor getting sufficient appropriate evidence and suggests a lack of cooperation.
The change of finance director and the dispute raise questions about integrity and the reliability of information, so the firm should find out why he left.
Unpaid fees of $80,000 could look like a loan to the client and create a self-interest threat to independence. They should be settled before the new audit report is signed.
Safeguards: seek access to the minutes, discuss the position with those charged with governance and consider a second partner review.
Conclusion: if access is not given and fees are not resolved, the firm should not continue and should resign or decline reappointment.

Answer: The firm should continue only if management gives full access, the fees are settled and integrity concerns are resolved. Otherwise it should resign or decline reappointment and follow the departure duties.

Example 2

The members of Brook Co pass a resolution to remove the auditor, Ash & Co, before the end of its term. Explain what Ash & Co should do.

Show the solution

Identify that this is removal, because the members decided and not the auditor.
Check that the company has followed the procedures required by local law for removal.
Consider whether Ash & Co has the right to make a statement of circumstances or representations about the removal, as local law provides, and whether it needs to give one.
Maintain confidentiality. Ash & Co may only give information to the successor with client consent, or where law requires or allows.
Respond to the successor's professional enquiry, and hand over files only as permitted.
Communicate with those charged with governance and document the decisions and actions.

Answer: Ash & Co should check the removal was lawful, make any required statement of the circumstances, handle confidentiality carefully, deal with the successor's enquiries with client consent, and document everything.

Exam tips

Read who is acting. The word resign, remove or reappoint tells you which rules apply.
Give a clear conclusion. Examiners expect a decision, not just a list.
Mention safeguards before resignation when the issue is an independence threat.
Link your points to scenario facts, such as unpaid fees or restricted access, to earn the application marks.
For objective questions, look for the answer that respects confidentiality and the law.

Continuing Engagements and Withdrawal or Resignation: frequently asked questions

When should an auditor resign from an engagement?

An auditor should resign when a problem cannot be solved by safeguards. Examples are dishonest management, a serious independence threat, or a persistent limit on access. The auditor should follow the law and professional rules on leaving.

What is the difference between resignation and removal of an auditor?

Resignation is the auditor's own decision to leave before the term ends. Removal is a decision by the company's members, usually by a resolution under company law. In both cases the auditor should follow the required procedures.

What is a statement of circumstances?

It is a statement by the departing auditor about the circumstances connected with leaving. It is given where the law or professional rules require it, and it informs the company, and in some places the regulator, if the departure raises concerns.

Can the outgoing auditor talk to the new auditor?

Yes, but only with the client's permission, unless the law requires or allows disclosure. The outgoing auditor should deal with the successor's enquiries professionally and honestly.