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Dear Ma’am,
As I was studying through my notes in preparation for the upcoming AAA exam, I came across a note that contradicted an another point in my notes. It is as follows:If an auditor, resigns from an engagement due to client’s non compliance to laws and regulations, one of the steps of resignation is to inform the circumstances of the resignation and all related matters of the resignation to the new auditor of the client.
In another part of the notes:
When we accept a new client, we should always contact the previous auditor and inquire if there is any reason as to why we shouldn’t accept the new client. And if there is, then we refuse to be the client’s auditor.
My question is:
so it is possible, that some companies will never get an auditor?, for example, if company A’s statements are pervasive, and management is implicated to such an extent that their auditor resigns, and then other auditors refuse to audit them once they learn about the said matter from the previous auditor, how do these clients get audited?I am suspecting, that I have this doubt, due to not having any real life work experience. Kindly help me understand if you can ma’am.
Thank you
You’ll find some useful background information in Chapter 3 of AA which is assumed knowledge for AAA.
Basically – if an auditor resigns or is not reappointed over what comes down to some “clash” with the directors, there are various mechanisms by which the auditor can make known to the shareholders and potential new auditors the relevant matters. E.g. in the UK, an auditor who resigns must file with their written notice of resignation a “statement of circumstances” (which may state that there are no circumstances). Then, if a simple majority of shareholders are not happy with the directors – they can remove them.
In the UK, for example, the majority of companies are private – and many of these are “owner-managed” – i.e. family owned. But also, due to their size, they don’t require a statutory audit.
If a company requires an audit and the directors cannot find anyone to accept the appointment within 28 days of issuing the financial statements (at the AGM) they have to notify the Secretary of State – who then has the power to appoint the auditor. This “fall back” is almost untested.
There was an instance in the UK in 2019 when Grant Thornton announced that it would not stand for reappointment and rival firms could not be persuaded to tender for the contract. The Secretary of State was notified but another firm came forward to accept the appointment after making appropriate stipulations about corporate governance measures.
Thank you !
I highly doubt this will ever be tested, I was just curious about the whole thingThanks again, you truly are the best!
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