Case Study 2

Client Acceptance and Professional Clearance

Intended audience: Professional Accountants in Public Practice

Company X approached audit firm A to audit its financial statements for the year ended a year ago. Company X informed audit firm A that they have attempted to reach its auditor from audit firm B for the past six months but to no avail and therefore decided to engage audit firm A to audit its financial statements for the year ended a year ago (the last financial year audited by B ended two years ago). Given the above circumstances, audit firm A has performed a search of audit firm B from the Accounting and Corporate Regulatory Authority (ACRA) and found out that audit firm B had been “removed” (dissolved). It was a sole proprietorship and the auditor being the sole proprietor, did not renew its practising license.


Can audit firm A accept Company X for this audit engagement? Does audit firm A need to seek professional clearance given the above circumstances?

Considerations / Recommendations:

The Code of Professional Conduct and Ethics (the Code) requires a practising member to obtain professional clearance from an existing auditor before he/she accepts a nomination as the new auditor.

Paragraphs SG210.17C and SG210.17D of the Code appear to imply that if after having exhausted all avenues to contact the existing auditor fails, the proposed practising member may accept the engagement if he/she is satisfied that there are no professional or other reasons for the proposed change after taking into account the guidance set out in paragraphs 210.10 to 210.18 of the Code. Proper documentation on this should be kept.

Nevertheless, as this matter involves interpretation of paragraphs SG210.17C and SG210.17D of the Code, audit firm A should seek professional advice from its solicitors. Proper documentation on its communication with Company X client and the search of audit firm B should be kept to demonstrate that professional clearance is not possible given the circumstances, and that the best possible efforts to seek professional clearance have been performed but to no avail.