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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Advertising, tendering, and obtaining professional work and fees

Pellman & Co is the proposed new auditor of Orion Retail. During tendering, the partner learns that the previous auditor resigned after a disagreement about revenue recognition. Pellman has the client's permission to contact the previous auditor. Which course of action is most appropriate?

Pellman should contact the previous auditor, with the client's permission, and enquire about any matters relevant to accepting the appointment, such as the reasons for the resignation. The response must be considered before acceptance. Accepting first or relying on the client's intermediary would not meet the Code.

  1. ADo not contact the previous auditor, since resignation reasons are confidential
  2. BContact the previous auditor, ask about facts relevant to the decision to accept, and consider the response when deciding whether to acceptCorrect
  3. CAccept the appointment, then contact the previous auditor within six months
  4. DAsk the client's finance director to obtain a written statement from the previous auditor and treat it as conclusive

Explanation

The Code requires a proposed auditor to communicate with the existing or predecessor accountant, with client permission, to learn of any professional or other reasons why the appointment should not be accepted. This must occur before acceptance. If permission is refused, the firm should consider declining. Treating a client-obtained statement as conclusive is not independent enough.

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