Section 320: Professional appointments

General

320.3 A1      Threats to compliance with the principles of integrity or professional behaviour might be created, for example, from questionable issues associated with the client (its owners, management or activities). Issues that, if known, might create such a threat include client involvement in illegal activities, dishonesty, questionable financial reporting practices or other unethical behaviour.

320.3 A2      Factors that are relevant in evaluating the level of such a threat include:

• Knowledge and understanding of the client, its owners, management and those charged with governance and business activities.
• The client’s commitment to address the questionable issues, for example, through improving corporate governance practices or internal controls.

320.3 A3      A self-interest threat to compliance with the principle of professional competence and due care is created if the engagement team does not possess, or cannot acquire, the competencies to perform professional services.

320.3 A4      Factors that are relevant in evaluating the level of such a threat include:

• An appropriate understanding of:
  • The nature of the client’s business;
  • The complexity of its operations;
  • The requirements of the engagement; and
  • The purpose, nature and scope of the work to be performed.
• Knowledge of relevant industries or subject matter.
• Experience with relevant regulatory or reporting requirements.
• The existence of quality control policies and procedures designed to provide reasonable assurance that engagements are accepted only when they can be performed competently.

320.3 A5      Examples of actions that might be safeguards to address a self-interest threat include:

• Assigning sufficient engagement personnel with the necessary competencies.
• Agreeing on a realistic time frame for the performance of the engagement.
• Using experts where necessary.

General

R320.4         A professional accountant shall determine whether there are any reasons for not accepting an engagement when the accountant:

(a)   Is asked by a potential client to replace another accountant;

(b)  Considers tendering for an engagement held by another accountant; or

(c)   Considers undertaking work that is complementary or additional to that of another accountant.

320.4 A1      There might be reasons for not accepting an engagement. One such reason might be if a threat created by the facts and circumstances cannot be addressed by applying safeguards. For example, there might be a self-interest threat to compliance with the principle of professional competence and due care if a professional accountant accepts the engagement before knowing all the relevant facts.

320.4 A2      If a professional accountant is asked to undertake work that is complementary or additional to the work of an existing or predecessor accountant, a self-interest threat to compliance with the principle of professional competence and due care might be created, for example, as a result of incomplete information.

320.4 A3      A factor that is relevant in evaluating the level of such a threat is whether tenders state that, before accepting the engagement, contact with the existing or predecessor accountant will be requested. This contact gives the proposed accountant the opportunity to inquire whether there are any reasons why the engagement should not be accepted.

320.4 A4      Examples of actions that might be safeguards to address such a self-interest threat include:

• Asking the existing or predecessor accountant to provide any known information of which, in the existing or predecessor accountant’s opinion, the proposed accountant needs to be aware before deciding whether to accept the engagement. For example, inquiry might reveal previously undisclosed pertinent facts and might indicate disagreements with the existing or predecessor accountant that might influence the decision to accept the appointment.
• Obtaining information from other sources such as though inquiries of third parties or background investigations regarding senior management or those charged with governance of the client.

Communicating with the existing or predecessor accountant

320.5 A1      A proposed accountant will usually need the client’s permission, preferably in writing, to initiate discussions with the existing or predecessor accountant.

R320.6         If unable to communicate with the existing or predecessor accountant, the proposed accountant shall take other reasonable steps to obtain information about any possible threats.

Communicating with the proposed accountant

R320.7         When an existing or predecessor accountant is asked to respond to a communication from a proposed accountant, the existing or predecessor accountant shall:

(a)   Comply with relevant laws and regulations governing the request; and

(b)  Provide any information honestly and unambiguously.

320.7 A1      An existing or predecessor accountant is bound by confidentiality. Whether the existing or predecessor accountant is permitted or required to discuss the affairs of a client with a proposed accountant will depend on the nature of the engagement and:

(a)   Whether the existing or predecessor accountant has permission from the client for the discussion; and

(b)   The legal and ethics requirements relating to such communications and disclosure, which might vary by jurisdiction.

320.7 A2      Circumstances where a professional accountant is or might be required to disclose confidential information, or when disclosure might be appropriate, are set out in paragraph 114.1 A1 of the Code.

Changes in audit or review appointments

R320.8         In the case of an audit or review of financial statements, a professional accountant shall request the existing or predecessor accountant to provide known information regarding any facts or other information of which, in the existing or predecessor accountant’s opinion, the proposed accountant needs to be aware before deciding whether to accept the engagement. Except for the circumstances involving non-compliance or suspected non-compliance with laws and regulations set out in paragraphs R360.21 and R360.22:

(a)   If the client consents to the existing or predecessor accountant disclosing any such facts or other information, the existing or predecessor accountant shall provide the information honestly and unambiguously; and

(b)  If the client fails or refuses to grant the existing or predecessor accountant permission to discuss the client’s affairs with the proposed accountant, the existing or predecessor accountant shall disclose this fact to the proposed accountant, who shall carefully consider such failure or refusal when determining whether to accept the appointment.

R320.9         For a recurring client engagement, a professional accountant shall periodically review whether to continue with the engagement.

320.9 A1      Potential threats to compliance with the fundamental principles might be created after acceptance which, had they been known earlier, would have caused the professional accountant to decline the engagement. For example, a self-interest threat to compliance with the principle of integrity might be created by improper earnings management or balance sheet valuations.

R320.10       When a professional accountant intends to use the work of an expert, the accountant shall determine whether the use is warranted.

320.10 A1    Factors to consider when a professional accountant intends to use the work of an expert include the reputation and expertise of the expert, the resources available to the expert, and the professional and ethics standards applicable to the expert. This information might be gained from prior association with the expert or from consulting others.