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• W202122831 abstract "Many companies that have changed auditors over the last year have elected to undergo a reaudit of prior-period financial statements. Corporate executives and boards of directors view reaudits in conjunction with an auditor change as a way to prove due diligence and satisfy the additional responsibilities imposed on them by the Sarbanes-Oxley Act of 2002. Other companies see reaudits as a way to assuage stockholder audit quality concerns and help restore investor confidence. Reaudits raise some unique practice considerations for CPAs. For example, what does a potential successor auditor do when a company's previous CPA firm no longer exists or a different firm now employs the original audit team? What if the company has made significant changes to its internal controls since the original audit? Does a reauditor have to redo confirmation and inventory observations? Further, what circumstances commonly necessitate reaudits? In 1997 the AICPA auditing standards board (ASB) issued SAS no. 84, Communications Between Predecessor and Successor Auditors, replacing a previous statement of the same name. SAS no. 84 * Clarified the definitions of predecessor and successor auditors. * Expanded the inquiries successor auditors must make and the audit documentation the predecessor must ordinarily make available. * Suggested firms use client consent and acknowledgment letters and successor auditor acknowledgment letters to improve communications between the company's old and new audit firms. The standard also addressed--for the first time--the concept of reaudits and provided CPAs with broad guidance on such assurance engagements. In 2002 the AICPA professional issues task force (PITF) issued Practice Alert 02-3, Reauditing Financial Statements, covering these and other issues. This article addresses the concerns reaudit engagements raise for both predecessor and successor auditors. The reauditor is required to make inquiries of the predecessor to help it determine whether to accept a reaudit engagement. The flowchart on pages 42-43 shows some of the issues the reauditor should evaluate in making this decision, gathering evidence to perform a reaudit, coordinating a current period audit with a reaudit and communicating with a predecessor if it appears previously issued financial statements might need to be revised. WHY A REAUDIT? Several circumstances commonly lead to a reaudit. As a result of problems like those Enron and WorldCom experienced, some companies switching auditors have elected to have the new audit firm reexamine prior-period financial statements because of concerns about the quality of the earlier audit. Accounting firms also face reaudit issues when companies file registration statements for initial public offerings (IPOs). Underwriters may require the same auditor to have audited the company's financial statements for the current and all prior periods, leading to a reaudit of its earlier statements. In addition the predecessor might not be independent under SEC rules, meaning another firm must do the reaudit. In an IPO filing, the commission requires predecessor auditor reports to accompany a subsequent report. This means a company might have to ask a predecessor to reissue its audit report. In considering reissue requests, the firm is effectively being asked to reestablish a relationship with a former client, which it may choose not to do based on factors discussed in Practice Alert 97-3, Changes in Auditors and Related Topics. In some instances the predecessor audit firm might no longer exist or may be unwilling to reissue its report. This is because common law doctrine generally imposes a gross negligence or fraud standard for recovery by third parties in the event of auditor malfeasance; the Securities and Exchange Act of 1933 allows recovery simply for ordinary negligence. In reissuing a report in connection with an IPO, the predecessor is exposed to a risk that didn't exist originally. …" @default.
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• W202122831 date "2003-01-01" @default.
• W202122831 modified "2023-09-28" @default.
• W202122831 title "Audit Redux: Practice Considerations in Accepting and Performing Reaudits" @default.
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