Can an auditor withdraw from an audit?

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The audit profession is based on integrity, so when a business is thinking about partnering with an audit firm, there is a lot to consider. Aside from the obvious — like qualifications, experience, and cost — the business will want to have a complete understanding of how an audit firm conducts business, the scope of the engagement, and the responsibilities they’ll be expected to oversee.

However, no matter how perfect the partnership between an audit firm and client may seem, as with all things in business, sometimes the partnership doesn’t work out, leaving both parties questioning if the auditor can withdraw from the audit. While there are various reasons that contribute to the dissolution of a partnership, auditors — and clients — must be aware that, yes, they can withdraw.

Let’s explore some scenarios in which an auditor might withdraw from an audit, including limited scope, suspected fraudulent activity, lack of client integrity, and loss of independence.

Scenario 1: Scope limitation revelations

An accurate scope is paramount to the success and integrity of an audit and the subsequent audit report. Sometimes, a business might approach an audit firm wanting to limit the scope of their engagement because they know that if they don’t, it will result in a qualified opinion. What if a client refuses to let the auditor meet with their development team? This drastically limits the scope of the engagement. In essence, they don’t want their developers in scope, but the developers are instrumental to the operating controls for their SaaS solution. As an auditor, if you can’t have access to the relevant components of the business, then you have to disclaim your opinion and consider whether or not you should withdraw.

In addition to this scenario, there are other situations in which the scope of an engagement might be limited. For instance, while the scope of the engagement should be discussed and agreed upon before an engagement starts, changes may occur, causing the scope to become too limited for the auditor to maintain the integrity of the audit. Or, because of lack of transparency from the client, it might be revealed that scope limitations existed before the engagement began. In either case, as an auditor, you can withdraw from an audit if you realize that there are scoping limitations.

Scenario 2: Suspected fraudulent activity

When identifying fraudulent activity with a client, auditors have a choice to withdraw from an audit. Why? Because an audit engagement is a two-way street: It takes both the auditor and the client to do their part in order to maintain the integrity of the engagement. However, whether an auditor detects or suspects fraud from the client, justifying withdrawing from the audit depends on guidelines set forth by various standards like those from the International Standards on Auditing and the American Institute of CPAs.

For example, according to the ISA 240, when auditors detect fraud, they must do the following:
1. Determine the professional and legal responsibilities applicable in the circumstances, including whether there is a requirement for the auditor to report to the person or persons who made the audit appointment or, in some cases, to regulatory authorities.
2. Consider whether it is appropriate to withdraw from the engagement, where withdrawal is possible under applicable law or regulation.
3. If they must withdraw, discuss with the appropriate level of management and those charged with governance the auditor’s withdrawal from the engagement and the reasons for the withdrawal, as well as determining whether there is a professional or legal requirement to report to the person or persons who made the audit appointment or, in some cases, to regulatory authorities, the auditor’s withdrawal from the engagement and the reasons for the withdrawal.

Scenario 3: Lack of client integrity

As with identifying fraudulent activity, if a client is found to have a lack of integrity, there is cause to withdraw from the audit. If an auditor works with a client who insists they have corrected some findings, but the issues are actually never corrected, it may lead to the discovery that rather than improving their controls, the client was simply trying to trick or distract the auditor by supplying false evidence.

This lack of integrity and misstatement of evidence has no place in the auditing world, and it’s paramount that auditors recognize when their clients are being dishonest, communicate that to the stakeholders in the engagement, and take appropriate action. In this case, it might just be withdrawing from the audit engagement. In other cases, it might include withdrawing from the audit and notifying regulatory bodies.

Scenario 4: Loss of independence

Auditors who lose independence during an engagement will ultimately compromise the integrity of the audit report, thus making it unreliable. During an engagement, auditors must go above and beyond to maintain their independence. This means they must avoid taking on clients where there are potential self-interest threats, familiarity threats or intimidation threats.

What would you do if a client told you to remove a finding from the audit, or else they would not include your firm in the bidding process for more audit work? This clearly results in a loss of independence as it creates an interest in the outcome of the audit, and it would be nearly impossible to maintain objectivity and integrity. Withdrawing from the engagement is the best outcome in this scenario.

Should you avoid withdrawing from an audit?

While many auditing and accounting professionals would agree that you should avoid withdrawing from an audit unless absolutely necessary, the integrity of your business and your deliverables is of utmost importance, especially to help maintain the integrity of the professional altogether. Make sure you are upholding the professional standards outlined by the ISA and the AICPA, and do not be afraid to stand your ground and withdraw from an audit. There’s no one easy way to withdraw from an audit, but auditors must realize that the option to do so is available.

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