Question

The Code of Ethics for Professional Accountants contains a specific requirement that must be met by the incoming auditor when there is a change in appointment. State the requirement and the paragraph number in APES 110 for the requirement.

Answer 1

Changes in a Professional Appointment

210.9 A Member in Public Practice who is asked to replace another Member in Public Practice, or who is considering tendering for an engagement currently held by another Member in Public Practice, shall determine whether there are any reasons, professional or otherwise, for not accepting the engagement, such as circumstances that create threats to compliance with the fundamental principles that cannot be eliminated or reduced to an Acceptable Level by the application of safeguards. For example, there may be a threat to professional competence and due care if a Member in Public Practice accepts the engagement before knowing all the pertinent facts.

210.10 A Member in Public Practice shall evaluate the significance of any threats. Depending on the nature of the Engagement, this may require direct communication with the Existing Accountant to establish the facts and circumstances regarding the proposed change so that the Member in Public Practice can decide whether it would be appropriate to accept the engagement. For example, the apparent reasons for the change in appointment may not fully reflect the facts and may indicate disagreements with the Existing Accountant that may influence the decision to accept the appointment.

210.11 Safeguards shall be applied when necessary to eliminate any threats or reduce them to an Acceptable Level. Examples of such safeguards include: When replying to requests to submit tenders, stating in the tender that, before accepting the engagement, contact with the Existing Accountant will be requested so that inquiries may be made as to whether there are any professional or other reasons why the appointment should not be accepted; Asking the Existing Accountant to provide known information on any facts or circumstances that, in the Existing Accountant‘s opinion, the proposed accountant needs to be aware of before deciding whether to accept the engagement; or Obtaining necessary information from other sources. When the threats cannot be eliminated or reduced to an Acceptable Level through the application of safeguards, a Member in Public Practice shall, unless there is satisfaction as to necessary facts by other means, decline the engagement.

SECTION 210 Professional Appointment

Client Acceptance

210.1 Before accepting a new client relationship, a Member in Public Practice shall determine whether acceptance would create any threats to compliance with the fundamental principles. Potential threats to integrity or professional behaviour may be created from, for example, questionable issues associated with the client (its owners, management or activities).

210.2 Client issues that, if known, could threaten compliance with the fundamental principles include, for example, client involvement in illegal activities (such as money laundering), dishonesty or questionable financial reporting practices.

210.3 A Member in Public Practice shall evaluate the significance of any threats and apply safeguards when necessary to eliminate them or reduce them to an Acceptable Level. Examples of such safeguards include: Obtaining knowledge and understanding of the client, its owners, managers and those responsible for its governance and business activities; or Securing the client‘s commitment to improve corporate governance practices or internal controls.

210.4 Where it is not possible to reduce the threats to an Acceptable Level, the Member in Public Practice shall decline to enter into the client relationship.

210.5 It is recommended that a Member in Public Practice periodically review acceptance decisions for recurring client engagements.

NJ