Ministry of Finance, Specific Independent Audit Guidelines No. 28 Communications Between Predecessor and Successor Certified Accountants

Issued: April 14 2003
Effective: July 1 2003
Applicability: A "predecessor certified accountant" refers to an accounting firm that has reported on the most recent audited financial statements or was engaged to perform but did not complete the audit work, and has dissolved or is likely to dissolve the business agreement with the client. A "successor certified accountant" refers to an accounting firm that is considering accepting or has accepted an engagement to replace the predecessor certified accountant to audit financial statements (Article 2).

Main contents: Prior to accepting the engagement, the successor accountant should initiate communications with the predecessor accountant with the consent of the audited work unit, and record and keep confidential their communications (Articles 4-6). The inquires may include: the integrity of the management; disagreements with management as to significant accounting or auditing issues; communications to the supervisory board of the work unit being audited, audit committees or other similar organizations regarding fraud; acts in violation of regulations and serious defects in internal control; and the predecessor auditor's understanding as to the reasons for the change of auditors (Article 8). Part Three covers communications after accepting the engagement. The successor accountant may review the working papers of the predecessor accountant with the consent of the work unit being audited and the permission of the predecessor accountant (Articles 10 and 11). Though the review may affect the successor accountant's procedures, the successor accountant should be responsible for its auditing procedures and conclusions (Article 13). If the successor accountant finds material mistakes in the financial statements reported on by the predecessor accountant, it should request that the work unit being audited inform the predecessor and meet together for a resolution if necessary (Article 14). If the work unit being audited refuses to inform the predecessor, or if the predecessor accountant refuses to attend the meeting, or if the resolution is not satisfactory, the successor should evaluate the implications for the audit report or dissolve the business agreement(Article 15).
Related legislation: Basic Independent Audit Guidelines