Final answer:
Before accepting an audit engagement, auditors must obtain knowledge of matters of continuing accounting significance and facts that might bear on the integrity of management from the predecessor auditors. These are essential for assessing the risk and integrity of the financial statements they are auditing.
Step-by-step explanation:
When an audit firm is considering accepting a new audit engagement, there are specific steps that need to be taken to ensure the integrity of the audit process. One of these steps involves communicating with the predecessor auditor. According to the American Institute of Certified Public Accountants (AICPA) and various international auditing standards, certain pieces of information are critical for the successor auditor to obtain from the predecessor auditor.
Primarily, auditors should obtain an understanding of matters of continuing accounting significance. This includes, for example, details of complex or unusual transactions from prior periods that may still affect the current financial statements. Furthermore, they need to query any facts that might bear on the integrity of management, as such facts could influence the auditors' risk assessments and their ability to rely on management representations.
While receiving an analysis of balance sheet accounts and analysis of income statement accounts would undoubtedly be useful to the incoming auditors in understanding the financial history of the company, these are typically the result of the audit process and are not necessarily transferred between auditors. The successor auditor will perform their analysis as part of their engagement.
Overall, regarding matters of past accounting significance and management integrity, a successor auditor must approach these subjects with due care and ensure they are adequately informed before accepting the engagement. This due diligence is a crucial step in maintaining the quality and credibility of the audit process.