Predecessor/Successor Communication Clarified
T he American Institute of CPAs auditing standards board has swept out Statement on Auditing Standards no. 7, Communications Between Predecessor and Successor Auditors, and replaced it with SAS no. 84, keeping the same title. For key provisions, see "New SAS on Passing the Baton," JofA, May97.
SAS no. 7 task force chairman Stephen M. McEachern told the Journal about the key differences between the exposure draft and the final statement: The ASB added a time-cutoff footnote that says the SAS does not apply if there were no audits for the two fiscal periods immediately preceding the current one.
The final statement, like the ED, says a predecessors working papers themselves are not evidential matter, but the results of a successors review of those papers are. Nevertheless, McEachern said access to working papers was a contentious issue. "Some practitioners thought we were going a little far, but the ASB thought it was essential." However, he pointed out the new statement was flexible; practitioners can deny access to working papers. The SAS is silent on reasons, but McEachern said if a client is suing the predecessor, the predecessors lawyer may advise not turning over working papers. Remaining in the appendix is language saying successors should not use predecessors working papers against them. "Its quid pro quo," said one ASB member during discussion. "Predecessors can say, Here, have our working papers; just dont use them against us."
Also addressed in the final statement is a situation in which a company has a review or compilation before the audit. In that case, the ASB agreed the CPA who performed either of these procedures was not a predecessor for the purposes of this SAS. However, McEachern said a CPA may still find it useful to review the materials anyway, if allowed access.
SAS no. 84 is effective for engagements accepted after December 31, 1997, with earlier application encouraged.
ASB Improves Understanding
S imultaneously updating both statements on auditing standards and statements on standards for attestation engagements, the American Institute of CPAs auditing standards board approved SAS no. 83 and SSAE no. 7, both titled Establishing an Understanding With the Client. For details, see "Auditing: Seeing Eye to Eye," JofA, May97.
Auditing Standards Technical Manager Kim Gibson told the Journal there was little change between the exposure draft and the final statement. "However, we made a change to indicate a practitioner has to obtain an understanding with each engagement. Both the SAS and SSAE cross-refer to Statement on Quality Control Standards no. 2, System of Quality Control for a CPA Firms Accounting and Auditing Practice, which requires that a CPA firm provide policies and procedures for obtaining an understanding with the client regarding services to be performed. Also added was language explaining that obtaining an understanding reduces the risk that the client and the auditor will misinterpret the needs or expectations of the other party.
The effective dates for both SAS no. 83 and SSAE no. 7 have changed from the original exposure draft; both statements are now effective for engagements for periods ending on or after June 15, 1998, with earlier application permitted.