Auditing standards require that audit firmsinvestigate a prospective client (i.e. new client) priorto accepting an engagement. One of the procedures that the successor auditor should carry out to investigate a prospective client is to communicate with the predecessor auditor.

Auditing standards also state that the auditor should establish an understanding with the audit client about the terms of the engagement and should document the understanding through a written communication with the client by means of an engagement letter.

Rodent Limited has been using Fair & Co as its auditor for more than seven years. The companys management has recently approached your firm to act as the companys auditor for the year ending 31 December 2020.

Required:

(a) What information should your firm, as the successor auditor, inquire of Fair & Co, the predecessor auditor, before you consider if you could accept the audit engagement?

(b) Why is the understanding mentioned above so important?

(c) What terms should be included in the engagement letter if you have decided to accept the audit engagement?

(d) In establishing the terms of the audit engagement, what topics should be discussed?