Successor Auditor Engagements: Handle With Care

Source: The CPA Journal

CPA firms considering an engagement as successor auditor should take precautions to avoid significant liability exposure. BDO Seidman LLP learned this lesson the hard way in early 2011, when it was hit with more than $90 million in compensatory and punitive damages for allegedly accepting improper accounting practices that its predecessor had refused to implement.

Before accepting such an engagement, find out why the client is changing auditors and whether it had any disagreements with its previous auditor. Scrutinize any SEC filings by the client and the previous auditor reporting the reasons for the change.

These filings won't necessarily reveal the real reasons, however, so it's important to communicate with the predecessor firm to ascertain the circumstances surrounding the decision to change auditors. Ask the prospective client for permission to review the predecessor's workpapers and other information related to its work for the client. If the client refuses, consider this a red flag and think twice about accepting the engagement.

Learn as much as possible about the prospective client and its accounting practices, and check for frequent auditor changes in the past, which may be a sign of “opinion shopping.”

For the complete article, read “Beware: Precautions for Accepting Retention as a Successor Auditor.”

From The CPA Journal, A Publication of the New York State Society of CPAs, December 2011.