Successor auditor definition
/What is a Successor Auditor?
A successor auditor is the outside auditor of an organization that replaces the predecessor auditor. Thus, the successor auditor conducts the audit for the current year when there was a predecessor auditor in the immediately preceding year. The successor auditor might have been hired because the predecessor was fired, or because the client is required by law to change auditors periodically. The successor auditor will need to review the working papers prepared by the predecessor auditor as part of its planning for the current-year audit. This must be done in order to gain a sufficient understanding of the client’s operations and processes.
The successor auditor must obtain the permission of the client before discussing audit issues with the predecessor auditor. When this permission is not given, it is a red flag that the predecessor auditor may have encountered problems with the books of the client.
Example of a Successor Auditor
Honey Corporation is a publicly traded company. For the fiscal year 2024, its financial statements were audited by Firm Smith. However, due to a mutual decision (or other reasons such as a change in audit fees, approach, or compliance issues), Honey decides to terminate its relationship with Firm Smith and hires Firm Jones to conduct the audit for the fiscal year 2025.
In this scenario:
Firm Jones is the successor auditor, as it is taking over the audit work from Firm Smith.
Firm Smith is the predecessor auditor, since it previously audited Honey Corporation's financial statements.