Billy Beat's

When considering whether or not to accept a new audit client, the successor audit should make specific and reasonable inquiries of the predecessor auditor regarding matters that will assist the successor auditor in determining the acceptance of the engagement. Matters subject to inquiry include: information that might bear on the integrity of management, disagreements with management as to accounting procedures, or other similar significant matters, and communications to audit committees regarding fraud, or illegal acts by clients. The engagement team of Billy’s Beats Inc. relied heavily upon management’s assumptions and integrity. By not communicating with the predecessor auditor, the successor auditor is blindly trusting management’s integrity and accounting policies.

The engagement team never assessed whether the newly acquired assets of Little Drummer Boy Inc. were reasonable to actuality. The auditors could have compared these useful lives to the useful lives used by competitors or inquired a specialists to determine the whether they believe the 30 yr. and 15 yr. useful life of were reasonable for the plant and equipment, respectively. Since the audit team decided to go off management’s word that the useful life was that which was used before the acquisition, the engagement team should have taken the initiative to consult with the predecessor auditor. According to AU Section 315.11, “The successor auditor should request that the client authorize the predecessor auditor to allow a review of the predecessor auditor’s working paper’s.”

The successor auditor failed to request this information from the newly acquired Little Drummer Boy Inc. By requesting this information and communicating with the predecessor auditor, the successor auditor could have reviewed the working papers of depreciation expense and also become clear of the reasoning