Communication with a Predecessor / Response to a Successor

By CPABC
Last Revision: 8/31/2016

Do I Have to Send or Respond to a Courtesy Letter?  Practitioners occasionally ask about sending or responding to a “courtesy letter”. We refer you to Rule 302 in the CPABC Code of Professional Conduct, “Communication with predecessor”:


302.1

A registrant (“successor”) shall not accept an engagement with respect to the practice of public accounting or the provision of a professional service not inconsistent therewith, where the successor is replacing another registrant or other professional (“predecessor”), without first communicating with such predecessor and enquiring whether there are any circumstances that should be taken into account which might influence the decision whether or not to accept the engagement.

302.2

A registrant shall respond promptly to the communication referred to in Rule 302.1.

302.3

(a) When a registrant was unable to continue with or resigned from an engagement with respect to the practice of public accounting, the registrant shall inform the successor of the fact of the withdrawal or resignation, as the case may be.
(b) When a registrant has been informed of the circumstances described in Rule 302.3(a), the registrant shall obtain the necessary information to make an informed decision as to whether to accept the client by:
    (i)     requesting such further information from the client; or
    (ii)    requesting permission from the client to obtain such further information from the predecessor.

The term “registrant” is used throughout the Code and means a designated member, registered CPA firm, a professional accounting corporation, or a student.

The additional guidance to Rule 302 is as follows:

  1. The purpose of the Rule is to protect a potential successor from accepting an engagement before that registrant has knowledge of the circumstances under which the predecessor’s services were discontinued. Knowledge of these circumstances might well influence that successor against accepting the engagement. The recommended procedure outlined below should be followed.
     
  2. When a successor has been asked by a prospective client to accept an engagement it is recommended that the client be advised that the predecessor should be notified of the proposed change by the client. The successor should then enquire of the predecessor whether there are any circumstances that should be taken into account which might influence the decision whether or not to accept the engagement. No work should be commenced on the account until the successor has communicated with the predecessor, except that in the client's interest, acceptance of the offered engagement should not be unduly delayed through the failure of the predecessor to reply, if every reasonable effort has been made to communicate with the predecessor.
     
  3. Rule 302.2 requires a registrant to respond promptly to a communication of this nature and to advise whether or not the registrant withdrew or resigned from the engagement. If there are no circumstances of which the successor should be made aware, a simple response to this effect is all that is necessary. If the withdrawal or resignation resulted from incapacity of the registrant to continue, that should be communicated. If, on the other hand, the predecessor is aware of circumstances that should be taken into account which might influence the decision whether or not to accept the engagement or the reason for the withdrawal or resignation does not relate to the registrant’s capacity, the predecessor should first consider the question of confidentiality. If it appears that the circumstances cannot be disclosed because of confidentiality, the response to the successor should state that there are, in the opinion of the predecessor, circumstances which should be taken into account, but that they cannot be disclosed without the consent of the client. Where confidentiality is in doubt, the predecessor should consider obtaining legal advice.
     
  4. When making an engagement acceptance decision, the successor is required to seek additional information in order to make an informed decision as to whether the circumstances of the withdrawal or resignation are such that the engagement should not be accepted. Such additional information may be obtained directly from the client or permission may be sought from the client to obtain such further information from the predecessor. The nature and reasonableness of any information obtained directly from the client or a refusal of permission from the client to contact the predecessor are factors that should be carefully considered by the successor when making the client acceptance decision.
     
  5. The successor should also enquire of the predecessor whether there is any ongoing business of which the successor should be aware, in order to ensure that the client's interests are protected. On the part of the predecessor, there must be readiness to co-operate with the successor, although client documents may be withheld where there are fees owing to the predecessor by the former client.
     
  6. Registrants should be cognizant of the provisions of any federal and provincial legislation, including securities legislation regulating changes in professional engagements or requiring notification of such changes to predecessors.

The attention of registrants is drawn to the provisions of various federal and provincial statutes, and to any regulations, guidelines or policy pronouncements issued pursuant to such statutes, which place requirements on the acceptance of audit appointments. These include securities legislation and related pronouncements, such as national policies issued by the Canadian Securities Administrators, the provisions of statutes governing financial institutions, and the audit appointment provisions of the Canada Business Corporations Act and the British Columbia Business Corporations Act.