How does changing auditors work?
Earlier we talked about the common challenges auditors face with international group audits. Companies also have their own challenges at this moment. As soon as traffic is getting less and people are starting to prepare their summer holiday, a lot of companies have evaluation sessions on the performance and experience with the financial auditor. Did they met the expectations? Was there enough ‘value for money’? And the closing question: are we going to stay with our current auditor or are we going to investigate the possibility to change the financial auditor? Often we receive the question from non-clients how a change of financial auditor works. Although most relationships are build on years and generations, sometimes a change of the financial auditor is inevitable. But how does changing auditors work?
Most non-Public Interest Entity (non-PIE) clients run through yearly engagement letter procedures with their auditors. This means that after each year a client has the possibility to change auditors. After resignation, the newly (to be) engaged auditor regularly requests the predecessor auditor with reference to Sections 16(e) and 17 of the ‘Verordening gedrags- en beroepsregels accountants (VGBA, Dutch Code of Ethics)’ to inform whether there are professional reasons or other facts or circumstances that are in your opinion relevant for evaluating the acceptability of the engagement.
The Dutch professional body for accountants in The Netherlands, the NBA (Koninklijke Nederlandse Beroepsorganisatie van Accountants – The Royal Netherlands Institute of Chartered Accountants) have made available template letters in respect to such requests.
Transition between auditors
When there are no boundaries on accepting a client, the new auditor needs to consider the responsibility with respect to the opening balance as part of the initial audit engagement. Standard 510 (on initial audit engagements – opening balances) gives guidance on this. Of course an auditor could perform additional procedures (if possible) on the opening balance (and/or comparative figures), however this would not be cost effective. The best option is to obtain sufficient appropriate audit evidence through a review of the predecessor auditor’s working papers.
Whether such a review provides sufficient appropriate audit evidence is influenced by the professional competence and independence of the predecessor auditor. A review of the working papers of the predecessor audit is often requested through a letter (again based on available templates), in which the new auditor request access to the working papers regarding the transition. If both parties agree, a transition file could be prepared. However, this is not common in the non-PIE market.
Planning while changing auditors
A smooth transition often benefits the first year audit of the new auditor. If you are considering a change of auditor, please be aware of above circumstances in relation to planning. Crowe Peak always helps their (new) clients with a smooth coordination on changing auditors. Contact us if you want non-obligated advice on changing auditors.