The once and future auditors: new SAS no. 84 provides transfer guidance for today's environment.

Author:Gibson, Kim M.
Position:Statement on Auditing Standards from AICPA

In October 1997, the American Institute of CPAs auditing standards board issued Statement on Auditing Standards no. 84, Communications Between Predecessor and Successor Auditors. This new standard supersedes SAS no. 7 of the same name and its interpretations. The ASB believes that the new SAS more accurately reflects today's proposal environment, described below. This article describes the new SAS and provides guidance on its implementation.

Practitioners considering accepting a first-time engagement should apply SAS no. 84 in conjunction with other established client acceptance procedures. Practitioners also should consult Statement on Quality Control Standards no. 2, System Of Quality Control for a CPA Firm's Accounting and Auditing Practice, (AICPA Professional Standards, QC [sections] 20, paragraphs 14-16).


Revised definitions of predecessor and successor auditors appear in SAS no. 84 and reflect the proposal environment found in practice today. Audit clients often solicit proposals from competing auditors and shop around to compare their current auditor's services and costs with other firms'. The current auditor is often asked to submit a proposal to be evaluated with the others. In these circumstances, the SAS no. 7 definitions of a predecessor and successor auditor were not appropriate. As a result, the definitions in SAS no. 84 are as follows:

Predecessor auditor. An auditor who (a) has reported on the most recent audited financial statements or was engaged to perform but did not complete an audit of any subsequent financial statements and (b) has resigned, declined to stand for reappointment or been notified that his or her services have been or may be terminated.

Under this definition a current auditor can be considered a predecessor auditor if he or she has been informed by the client that services may be terminated.

Successor auditor. An auditor who is considering accepting an engagement to audit financial statements but has not communicated with the predecessor as required (see below) and an auditor who has accepted such an engagement.

An auditor becomes the successor auditor after the prospective client extends an offer to perform the engagement; at this point the successor auditor can communicate with the predecessor.


Below are the main points of the new SAS and how they affect auditors and the clients they serve.

Required communications. The required communications include specific and reasonable inquiries of the predecessor regarding matters that will help the successor decide whether to accept an engagement. A successor cannot accept an engagement until he or she has communicated with the predecessor and evaluated the responses. Required communications include matters relating to

* Information that might bear on the integrity of management.

* Disagreements with management as to accounting principles, auditing procedures or other significant matters.

* Communications to audit committees or others with equivalent authority and responsibility regarding fraud, illegal acts by clients and internal control related matters.

* The predecessor auditor's understanding about the reasons for the change of auditors.

The proposal environment. An auditor should not accept an engagement before evaluating the responses to the above list. However, an auditor may make a proposal on an engagement before initiating communications. In this case, the auditor may wish to advise the prospective client in the proposal letter that he or she cannot formally accept the engagement until the results of the required communications have been evaluated. If a client asks for proposals from several auditors, the predecessor is not expected to respond to inquiries until one auditor conditionally accepts the engagement subject to required communications.

Predecessor's response to the successor. A predecessor should respond fully to the successor's inquiries. However, a predecessor who limits his or her response should let the successor auditor know this is the...

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