A predecessor auditor refers to the auditor who previously performed and reported on an audit engagement for a particular entity in a prior period, but no longer does so. The role has been taken over by a new, or successor, auditor.
A successor auditor (the new auditor) often communicates with the predecessor auditor to understand matters such as reasons for change in auditors, disputes over accounting principles, and other potential issues or risks. However, the predecessor auditor may only provide information to the successor auditor after obtaining permission from the client.
The communications between the predecessor and successor auditors are generally considered a part of good auditing practice as guided by auditing standards. These interactions can provide important context and insight into potential challenges or areas of concern.
Example of a Predecessor Auditor
Let’s take an example of a hypothetical tech company, let’s call it “TechRise Corp.”
TechRise Corp has been audited for several years by Audit Firm A. The auditors from Audit Firm A are therefore the “predecessor auditors.” They have a deep understanding of TechRise Corp’s financials, business processes, and risk areas from their years of auditing the company.
Due to a business decision, TechRise Corp decides to switch their auditors and hires Audit Firm B for the next financial year. Audit Firm B becomes the “successor auditor.”
As part of the auditing standards and procedures, the audit team from Audit Firm B would generally reach out to Audit Firm A to gather information about TechRise Corp. This would include understanding any significant accounting or auditing issues that arose in previous audits, the overall experience with the client, and any reasons for the change in auditors. This can provide valuable insight for Audit Firm B as they begin their audit process.
However, it’s important to remember that any such communication between the predecessor and successor auditors requires the client’s permission, in this case, TechRise Corp.
This kind of process helps to ensure a smooth transition between auditors, minimizes the risk of misunderstanding or oversight, and upholds the quality and integrity of the audit process.