Reasons for changing auditors

Changes in professional appointment means a company replaces its existing auditor with a new auditor.

Dalam Bahasa Melayu: Pertukaran pelantikan profesional, iaitu pertukaran daripada juruaudit sedia ada kepada juruaudit baharu.

The new auditor is called the proposed or incoming auditor, while the previous auditor is called the existing or outgoing auditor.

Reasons for changing auditors

Reason	Example
Audit fee disagreement	The client considers the existing auditor’s proposed fee too high.
Need for different expertise or resources	The company expands overseas and requires an audit firm with an international network.
Service concerns	The client is dissatisfied with delays in completing the audit.
Disagreement over accounting treatment	Management refuses to write down obsolete inventory as requested by the auditor.
Auditor’s resignation	The existing auditor decides to discontinue the engagement because of concerns about management’s integrity.

Responsibilities of the proposed auditor before accepting

The proposed auditor should investigate the circumstances of the change, including communicating with the existing auditor about relevant professional matters. This helps the proposed auditor make an informed acceptance decision. www.at-mia.my

Step	Explanation	Example
1. Ask the client why the change is proposed	Understand the reason and identify possible concerns.	Management says the previous auditor was “too strict”. The proposed auditor investigates what this means.
2. Obtain the client’s permission to communicate	Seek authorisation for the existing auditor to discuss relevant matters.	The client provides written permission for professional communication.
3. Communicate with the existing auditor	Ask whether there are professional or other reasons relevant to accepting the appointment.	Enquire about accounting disagreements, access restrictions or concerns about management’s honesty.
4. Evaluate the information received	Consider its effect on client acceptance, independence and the ability to perform a proper audit.	The existing auditor explains that management withheld important records.
5. Decide whether to accept	Accept only after the relevant concerns have been satisfactorily considered.	Decline if serious concerns about management’s integrity remain unresolved.

If the client refuses permission to communicate, the proposed auditor should carefully consider that refusal when deciding whether to accept. It is a warning sign requiring investigation, rather than automatic proof of wrongdoing. www.icaew.com

Practical example

ABC Sdn. Bhd. wants to replace Ali & Co. with Bakar & Co.

Ali & Co. had discovered obsolete inventory requiring a RM80,000 write-down. Management refused because the adjustment would reduce profit.

Before accepting, Bakar & Co. should communicate with Ali & Co., with appropriate authorisation, and assess the disagreement. The concern is that management may be seeking an auditor who will accept an inappropriate inventory value.

Key examination point: Communication with the outgoing auditor helps the incoming auditor identify matters affecting acceptance. The incoming auditor makes its own acceptance decision; it is not simply asking the outgoing auditor for permission to act.