Introduction to financial

statement audit
Independent auditing define
• Auditing has been defined in different ways by different sources. The
definition given by the American Accounting Association provides an
effective means of introducing and initially exploring the topics
• Auditing is a systematic process by which is competent, independent
person objectively obtains and evaluates evidence regarding
assertions about economic action and events to ascertain the degree
of correspondence between those assertions and established criteria
ad communicating the result to interest users
This definition includes several key words
and phrases briefly discussed in this section
• Systematic process – this implies a structured, logical, and organized series of
steps and procedures. Auditing consist of a series of sequential steps that
include information testing system and testing of transactions and balance
• Competent, independent person – the auditor must be qualified to understand
the criteria used and the competence to know how and what evidence to
accumulate to reach the proper conclusion. The auditor must also have an
independent mental attitude which involves impartial and objective thinking.
• Objectively obtains and evaluates evidence – this means examining the bases
for the assertion (representations) and judiciously evaluating the result
without bias or prejudice either for or against the individual (or entity) making
the representations.
Objective of auditing
The Philippine standard on auditing (PSA) 120 ‘’framework of Philippine
standards on auditing’’ states the objective of an audit as follows:
“the objective of an audit of financial statements is to enable the
auditor to express an opinion whether the financial statement are
prepared, in all material respect, I accordance with an identified
financial reporting framework the phrase used to express the auditor’s
opinion is ‘’present fairly, in all material respects’’ a similar objective
applies to the audit of financial or other information prepared on
accordance with appropriate criteria’’
the auditor’s opinion helps establish the credibility of the financial
statements. The user, however, should not assume that auditor’s
opinion is an assurance as to the future viability of the entity nor an
opinion as to the efficiency or effectiveness with which management
has conducted the affairs of the entity.
In conducting an audit of financial statements,
the overall responsibilities of the auditor are:
A. To obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether
due to fraud or error, thereby enabling the auditor to express an
opinion on whether the financial statement are prepared, in al material
respects, in accordance with an applicable financial reporting
framework: and
B. To report on the financial statements, and communicate as required
by the Philippine standards on auditing (PSAs), in accordance with the
auditor’s findings
Scope of independent audit
• The term “scope of an audit” refers to the audit procedures deemed necessary in
circumstances to achieve the objective of the audit. Thhe procedures required to conduct
an audit in accordance with PSAs, releveant professional bodies, legislation, regulation
and, where appropriate, the terms of the audit engagement and reporting requirements.
Since the primary objective of an independent audit is to express an opinion on the
company’s financial statement, the auditor will conduct a critical and systematic
examination of the statements and of the related documents, records, procedures, and
control. Audit evidence may be gathered to enable him to substantive the representations
in the financial statements. Internal controls will be evaluated for effectiveness since they
affect the reliability of the financial be evaluated for effectiveness since they affect the
reliability of the financial records. By inquiry, observation, confirmation and inspection, the
auditor can test the existence and validity of assets, liabilities, overall reasonableness of
other account balances in the financial statements
Why independent financial auditing is
necessary
Without wide public acceptance, professions cannot exist, and
independent auditing is no exception. Over the years, society has
perceived a need for audits of publicly held companies, which has
developed as a result of the separation of owenership and
management. Auditing services are used extensively by business
government, and other not-for-profit organizations. As society
‘becomes more complex, there is an increased likelihood that
unreliable information will be provided to decision makers
This is referred to as ‘’information risk’’. Some of
the factors that contribute to information risk are:
a. Remoteness of information users from information providers – decision makers, almost
always, do not get firsthand knowledge about the business enterprise with which they do
business for the reasons that in many cases,
1. owners are divorced form managements,
2. directors are not involved in day-to-day operations or decision,
3. business may be dispersed among numerous geographic location and complex corporate
structure.
b. Potential bias and motives of information provider – a conflict of interest may be assumed
to exist between management and owners regarding the financial statements. Management
usally desires to present the results of its stewardship in the most favorable light. Information
amy possibly be biased in favor of the provider when his goals are inconsistent with the desion
maker. This could be attributed to either an international emphasis designed to influence
users in a certain manner or may be an honest optimism about future events.
c. Voluminous date – are businesses grow, possibly millions of exchange transactions are
processed daily via manual or sophisticated computerized systems. This increases
therefore the likehood that improperly recorded information may be included or buried
in the records.
d. Complex exchange transactions – new and changing business relationship may lead to
innovative accounting and reporting problems. Some tractions are complex and hence
more difficult to record properly, also transaction not quantifiable will require increased
disclosures
e. Consequences – during the past decade, many financial statement users – pension
funds private investors, venture capitalist, and banks – lost billions of pesos because
financial information had become unreliable. As an example, the factors leading up to,
and the consequences of, unreliable information can be seen in the subprime mortgage
crisis in the united states
Advantages and practical benefits of
independent audit
a. To the auditee or client
1. independent audit makes the financial statements more credible and
reliable.
2. management is the beneficiary of constructive suggestions in
improving business operations
3. commission of fraud by management and employee is minimized.
4. audited financial statement provide a more credible basis for the
preparation of tax returns.
5. better and sound management decision may be made if financial
records and reports are accurately maintained and provided.
b. To creditors, prospective investors, employees
1. financial institutions have more credible basis in deciding whether financial
assistance will be extended to the auditee.
2. suppliers and other creditors will have reliable basis in making decision related to
extension of credit.
3. potential and current investors will have more credible basis in evaluating
managerial efficiency.
4. employees will have a better and credible basis in requesting for fringe benefits
and wage adjustments.
5. in the event of sale, purchases, or merger of a business, bot buyer and seller will
have more confident basis for aiming at a decision as to the terms and conditions of the
arrangement.
C. To government agencies and legal community
1. BIR has more assurance concerning accuracy and dependability of
tax return if they have been based in audited financial statements.
2. government institutions like GSIS, SSS, DBP will have better basis
in extending financial assistance to business enterprises.
# audited statements provide the legal community an independent
basis for administering estates and trust, setting action in bankruptcy
and insolvency, etc.
Overview of the audit opinion formulation
process
Phase ! Risk assessment

Performing risk assessment including client

acceptance and continuance decision

Phases II Risk response

Obtaining evidence about internal control operating

effectiveness

Obtaining substantive evidence about accounts,

disclosures and assertions

Phase III Reporting

Completing the audit and making reporting decisions

Phase I
The audit opinion formulation process concerns risk assessment starting from client
acceptance and continuance. Auditors are not required to perform audits for any
organization that asks, auditors choose whether or not to perform each individual audit,
audit forms have procedures to help ensure that they are not associated with clients
where management integrity is question or where a company might otherwise present
the audit form the unnecessarily high risk (such as client financial failure or regulatory
action against the client.)

Once a client is accepted ( or the audit firm decides to continue to audit the client), the
auditor needs to perform risk assessment procedures to understand the client’s business
thoroughly (or update prior knowledge in the case of a continuing client), its industry, its
competition, and its management an governance processes ( including internal controls)
to determine the likelihood that financial accounts might be in error.
Phase II
The auditor will also obtain evidence about internal control operating
effectiveness through testing those controls, much of what most people
think of as auditing, the obtaining of substantive evidence about
accounts, disclosures, and assertions are also in the phase. The
information gathered in Phase I through it will greatly influence the
amount of testing to be performed
Phase III
The auditor will complete the audit and make a decision about what
type of audit report to issue.
The final phase in the audit process is to evaluate result and choose the
appropriate audit report to issue. The auditor’s report, also known as
the audit opinion, is the main product or output of the audit. Just as
the report of a house inspector communicates the inspector’s finding
to prospective buyer, the audit report communicates the auditor’s
finding to the users of the financial statements
Activities of each phase of the audit
opinion formulation process
Phase of the audit Activities within the phase
Opinion formulation process
Phase I – risk assessment • Assess precondition for an audit
Performing risk assessment including client • Develop common understanding of the audit
acceptance and continuance engagement with the client
• Identity and assess risk of material misstatement
• Respond to identify risk of material misstatement
Phases II – risk response • Select controls to test, if applicable
Obtaining evidence about internal control • Perform test of controls, if applicable
Operating effectiveness, if applicable • Consider the results of test of controls, if applicable
Obtaining substantive evidence about accounts, • Perform substantive tests
disclosures and assertions

Phase III • Complete revie and communication activities

Completing the audit and making reporting dicisions • Determine the type(s) of opinion(s) to issue
Management assertion and financial
statements
Financial statement assertions are management’s expressed or implied
claims about information reflected in the financial statements.
Assertions are central to auditing because they are the focus of the
auditor’s evidence collection effort. In other words, much of what
auditors do revolves around collecting and evaluating evidence about
management’s financial statement assertions.
One of the main task of the auditor is to collect sufficient appropriate
evidence that management’s assertions regarding the financial
statements are correct. The process is really quite logical and intuitive.
First, you would carefully consider the most important assertions the
company is making about the account and the you would decide what
evidence you would need to substantiate the truthfulness of each
important assertion
Materiality
Materiality refers to the amount by which a set of financial statement
could be misstated without affecting the judgment of reasonable
person. It also refers to the magnitude of an omission or misstatement
of accounting information that, in the light of surrounding circumtances
make is probable that the judgment of a reasonable person relying on
that information would have been changed or influenced by the
omission or misstatement.
Audit risk
The second major concept involved in auditing is audit risk, whish is the
risk that the auditor may mistakenly give a ‘’clean’’ opinion on financial
statements that are materially misstated.
Audit risk is the risk that the auditor mistakenly expresses a clean audit
opinion when the financial statements are materially misstated
Audit evidence regarding management
assertions
The third concept involved in auditing is evidence regarding management’s
assertions, or, more simply, audit evidence. Most of the auditor’s work in arriving
at an opinion on the financial statements consists of obtaining and evaluating
auditing evidence relating to management’s assertions. Audit evidence consists
of the underlying accounting data and any additional information available to the
auditor, whether originating form the client or externally
The sufficiency of audit evidence simply refers to the quantity of evidence the
auditors obtains – does the auditor have enough evidence to justify a conclusion
as to whether management’s assertions are fairly stated? The appropriateness of
audit evidence refers to whether the evidence is relevant and reliable. Relevance
refers to whether the evidence relates to the specifics management assertion
being tested. Reliability refers to the diagnosticity of the evidence.
General principles of an audit
Compliance with ethical requirements
The auditor should comply with the ‘’revised code of ethics for professional accountants in the
Philippines’’ promulgated by the board of Accountancy and approved by the Philippines
Professional regulation Commssion. Ethical principles governing the auditors professional
responsibilities are:
a. Independence;
b. Integrity;
c. Objectivity;
d. Professional competence and due care;
e. Confidentiality;
f. Professional behavior, and
g. Technical standards
Reasonable assurance
An audit in accordance with Philippine standards on auditing (PSAs) is
designed to provide reasonable assurance that the financial statement
taken as a whole are free from material misstatements. Reasonable
assurance is a concept relating to the accumulation of the audit
evidence necessary for the auditor to conclude that there are no
material misstatements in the financial statements taken as a whole.
Reasonable assurance relates to the whole audit process
Responsibility for the financial statements
While the auditor is responsible for forming and expressing an opinion
on the financial statement, the responsibility for preparing and
presenting the financial statements is that of the management of the
entity. The audit of the financial statements does not relieve
management of its responsibilities.
Skills and knowledge need in financial
statement audit
Audits are preformed in teams where each auditor is expected to
complete tasks requiring considerable technical knowledge and
expertise, along with leadership, teamwork, and professional skill. In
term of technical knowledge and expertise, auditors must understand
accounting and auditing authoritative literature develop industry and
client-specific knowledge, develop and apply computer skill, evaluate
internal controls, and assess and respond to fraud risk.
Parties involved in preparing and auditing
financial statements
• Various parties are involved in the preparation and audit of financial
statements and related disclosures. Management has responsibilities for
(a) Preparing and presenting financial statements in accordance with the
applicable financial reporting framework;
(b) Designing, implementing and maintaining internal control over
financial reporting; and
(c) Providing the auditors with information relevant to the financial
statements and internal.
The internal audit function provides management and the audit
committee with assurance on internal controls and report.
Relating the audit process components to the
business model
While businesses in different industries can have different characteristics, most have some
fundamental conceptual characteristics in common, these commonalities provide a way for
auditors to organize how they approach financial statement audit, regardless, of the type of
entity they are auditing.
Must businesses establish processes that fit in broad business process categories, also known
as business cycles. The five categories that characterize the processes of most businesses are
1. Revenue and collection cycle
2. Purchases and disbursement cycle
3. Payroll
4. Inventory warehousing transaction
5. Financing process
Each business process involve a variety of important transactions.
OVERVIEW OF RISK-BASED
AUDIT PROCESS
INTRODUCTION
Risk-based audit approach- is an audit approach that begins with an assessment of the
type and likelihood of misstatements in account balance and then adjusts the amount
and type of audit work, to the likelihood of material misstatements occurring in
account balances.
Under this approach, the auditor performs the following:
1. Identification of the client’s strategy and the processes for developing that strategy
2. Examination of the core business process and resource management
3. Identification for each of the key processes (as well as sub-processes) the
objectives, inputs, activities, output, systems and transaction.
4. Assessment of the risks that the processes will not meet the goals and controls
related to those risks
Factors to consider in implementing the audit
risk model
High risk activities – this includes operation or events where a material misstatements could
easily occur. For example, an inventory of high-value diamonds or gold bars held by a jeweler, or
a new/ complex accounting system being introduced
Existence of large non-routine transaction
• Identified significant related party transaction outside the entity’s normal course of business
are to be treated as giving rise to significant risks. This includes infrequent and large transaction
example;:
• Unusual volume of routine transaction with a related party:
• A major sales r supply contract;
• The purchases or sale of major business assets business segments; and
Sale of the business to a third party
• Routine non-complex transaction that are subject to systematic processing are less likely to give
rise to significant risk
Matters requiring judgment or management intervention
• Example would include:
• The assumptions and calculations used y management in developing major
estimates;
• Complex calculations or accounting principles;
• Revenue recognition (presumed to be significant risk) that is subject to
differing interpretation;
• Where management intervention is required to specify the accounting
treatment to be used,
Potential for fraud
• The risk of not detecting a material misstatement resulting from fraud
(which is intentional and deliberately concealed) is higher than the risk of
not detecting one resulting from error.
• In evaluating whether significant risk could result from the identified
fraud risk factors and the possible scenarios and schemes identified in
team discussions, consider the following;
• Skillfulness of the potential perpetrator;
• Relative size of individual amount manipulated;
• Level of authority of management or employee to;
Directly or indirectly manipulate accounting record, and override control procedures
Risk-based audit vs account-base audit
In account-based auditing, auditors first obtain an understanding of
control and assess control risk for particular types of errors and frauds
in specifics accounts and cycle.
In risk-based audit, the audit team views all activities in the
organization first in term of risks to strategies and objectives and the in
term of management’s plans and processes to mitigate the risk the
auditors obtain an understanding of the client’s objectives. Then risks
are identified and the auditors determine how management plans to
mitigate the risk and whether those plans are in place and operating
effectively
The risk – based audit process
Phase I. risk assessment
This phase involves the following activities;
a. Performance of preliminary engagement activities to decide
whether to accept / continue an audit engagement
b. Planning the audit to develop an overall audit strategy and audit
plan
c. Performance of risk assessment procedures to identify / assess risk
of material misstatement through understanding the entity
Phase II. I risk response
The phase covers the following activities:
A. Designing overall responses and further audit procedures to
develop appropriate responses to the assessed risk of material
misstatement
B. Implementing responses to assessed risk of material misstatement
to reduce audit risk to an acceptably low level.
Phase III. Reporting
This phase involves the following activities:
a. Evaluating the audit evidence obtained to determine what
additional audit work (if any) is required.
b. Forming an opinion based on audit finding and preparing the
auditor’s report
Nature risk
Risk is a concept used to express uncertainty about events and/or their outcomes that could
have a material effect on the organization.
The four critical components of risk that are relevant to conducting the audit are;
1. Audit risk – the risk that an auditor may give an unqualified opinion on financial statements
that are materially misstated.
2. Engagement risk – the economic risk that a CPA firm is exposed to simply because it is
associated with a particular client including loss of reputation. Inability of the client to pay
the auditor, or financial loss because management is not honest and inhibits the audit
process engagement risk is controlled by careful selection and retention of client
3. Financial reporting risk – those risks that relate directly to the recording of transactions and
the presentation of financial date in an organization’s financial statements.
4. Business risk – those risks that affect the operations and potential outcomes of organization
activities
Audit risk
Defined as the risk that the auditors fails to find material misstatements
in the client’s financial statements and thereby inappropriately issues
an unqualified opinion on the financial statements. The auditor can
control audit risk in two different ways:
1. Avoid audit risk by not accepting certain companies as client, I,e.
reduce engagement risk to zero.
2. Set audit risk at a level that the auditor believes will mitigate the
likelihood that the auditor will fail to identify material
misstatements
Risk assessment – part 1
Introduction
At the beginning of the current audit engagement, the auditor should
perform the following activities:
a. Perform procedures required by PSA 220, ‘quality control of an audit
of financial statement’ regarding the continuance of the client
relationship and the specific audit engagement
b. Evaluate compliance with ethical requirements, including
independence as required by PSA 220.
c. Establish an understanding of the terms of engagement as required
by PSA 210, “agreeing the terms of audit engagements”
Client selection and retention
The auditor’s consideration of client continuance and ethical
requirements, including independence, occurs throughout the
performance of the audit engagement as conditions and changes in
circumstance occur. However, the auditor’s initial procedures on both
client continuance and evaluation of ethical requirements (including
independence) are performed prior to performing other significant
activities for the current audit engagement.
Client acceptance / retention decisions
Another element of quality-control deals with accepting and retaining clients. This
decision involve more than just a consideration of management’s integrity. Strict client
acceptance/continuance guidelines should be establish to screen out the following:
• Clients that are in financial and/or organizational difficulty – for example, clients that
could go bankrupt or clients with poor internal accounting controls and sloppy record.
• Clients that constitute a disproportionate percentage of the firm’s total unacceptable
accounting practices or issuing inappropriate opinions
• Disreputable clients – external audit firms cannot afford to have their good reputation
tarnished by serning a disreputable client or by associating with a clear that has
disreputable management
• Clients that offer an unreasonably low free for the auditor’s services – in response,
the auditor may attempt to cut corners imprudently or loss unreasonably low prices.
Engagement letter
The engagement letter, which includes the audit free, also includes a
description of the timing of the external auditor’s work and description
of documentation that the client is expected to provide to the external
auditor. In writing an engagement letter, care should be taken when
describing the degree of responsibility the auditor takes with respect to
discovering the requirements of the auditing standards, the auditors
should have their attorneys review the wording to make sure that is
says not only what is intended but also what is possible
Recurring audits
the auditor shall assess whether circumstances require the term of the
audit engagement to be revised and whether there is a need to remind
the entity of the existing term of the audit engagement. The auditor
shall not agree to the change in the terms of the audit engagement
where their is no reasonable justification for doing so
Planning the audit to develop an overall audit
strategy and audit plan
Introduction

Once the client has been obtained and the engagement letter signed by
both parties (auditor and client). The planning process intensifies as the
auditors concentrate their efforts in obtaining a detailed understanding
of the client’s business in developing an overall audit strategy and asses
the risks of materials misstatement of the financial statements
Audit planning
Involve the establishment of the overall audit strategy for the
engagement and developing an audit plan, in order to reduce audit risk
to an acceptably low level. Planning involves the engagement partner
and other key members of the engagement team to benefits from their
experience and insight and to enhance the effectiveness and efficiency
of the planning process.
Benefits of audit planning
Audit planning generally involves the determination of the expected nature timing and
extent of the audit. Among the benefits derived from audit planning are the following:
A. It help ensure that appropriate attention is devoted to important areas of the audit.
B. It aids in identifying potential problems and resolving them on a timely basis
C. It help ensue that the audit is properly organized, managed and performed in an
effective and efficient manner.
D. It assist in the proper assignment and review of the work of the engagement team
members.
E. It helps coordinate the work to be done by auditors of components and other
parties involved such as experts, specialist, etc.
The overall audit strategy
PSA 300 requires that the auditor establishes the overall strategy for the audit. This overall audit strategy sets
the scope, timing and direction of the audit and guides the development of the more detailed of the preliminary
activities described in the preceding section. The process of establishing the audit strategy involves.
a. Identifying the characteristics of the engagement that define its scope example are:
1. the financial reporting framework
2. industry specific reporting requirements, and
3. the location of the components of the entity.
b. Ascertaining the reporting objectives of the engagement to plan the timing of the audit and the nature of the
communication required such as:
1. deadlines for interim and final reporting, and
2. key dates and organization of meeting with management and those charged with governance to discuss
the nature and extent of audit work.
3.discussion with management regarding the expected communication on the status of audit work
throughout the engagement.
c. Considering the important factors that will determine the focus and
direction of the engagement teams efforts, such as:
1. determination of appropriate materiality levels
2. preliminary identification of areas where there may be higher risk of
material misstatement.
3. preliminary identification of material components and account balances.
4. evaluation of whether the auditor may plan to obtain evidence
regarding the effectiveness of internal control, and
5. identification of recent significant entity-specific, industry, financial
reporting or other relevant developments.
d. Considering the result of preliminary engagement activities and
where applicable, whether knowledge gained on other engagements
performed by the engagement partner for the entity is relevant; and
e. Ascertaining the nature, timing and extend of resources necessary to
perform the engagement.
Benefits of developing the audit strategy
The resources to deploy for specific audit areas, such as the use of appropriately
experience team members for high risk areas or the involvement of experts on complex
matters.
The amount of resources to allocate to specific audit areas, such as the number of team
members assigned to observe the inventory count at material locations, the extent of
review of other auditors’ work in the case of group audits, the extent audit budget in hour
to allocate to high risk area
When these resources are to be deployed, such as whether at an interim audit stage or at
key cut-off dates; and
How such resources are managed, directed and supervised, such as when team briefing
and debriefing meetings are expected to be held, how engagement partner and manager
reviews are expected to take place ( for example, on-site or off-site), and whether to
complete engagement quality control reviews.
Application of the concept of materiality to
audit
PSA 320, “materiality in planning and performing an audit” establishes standards and
deals with the auditor’s responsibility to apply the concept of materiality in planning
and performing an audit of financial statements

To reiterate the importance of the concept of materiality to audit, the definition of

materiality in accordance with the FRSC’s “framework for the preparation and
presentation of financial statements” follows:
“information is material if its omission or misstatement could influence the economic
decisions of users taken on the basis of the financial statements. Materiality depends on
the size of the item or error judged in the particular circumstances of its omission or
misstatement. Thus, materiality provides a threshold or cut-off point rather than being a
primary qualitative characteristic which information must have if it is to be useful
Overall materiality
Materiality for the financial statements as a whole (overall materiality)
is based on the auditor’s professional judgment as to the highest
amount of misstatements(s) that could be included in the financial
statements without affecting the economic decisions taken by a
financial statement user.
Specific materiality
There may be a need to identify misstatements of lesser amount than
overall materiality that would affect the economic decisions of financial
statement users. This could relate to sensitive area such as particular
note disclosures (I.e, management remuneration or industry-specific
data)
Performance materiality
Performance materiality is used by the auditor to reduce the risk to an
appropriate low level that the accumulation of uncorrected and
unidentified misstatements exceed materiality for the financial
statements as a whole(overall materiality), or materiality levels
established for particular classes of transactions, account balance, or
disclosures (specific materiality)
How to determine materiality
Auditors make a preliminary assessment of materiality of the financial
statements as a whole by determining the amount by which they
believe the financial statements could be misstated without affecting
users’ decisions. This-amount is called ‘’preliminary judgement about
materiality’’ or ‘’ planning materiality’’ this judgment need not be
quantified but often is. It is called judgment and may change during the
engagement if circumstances change.
Relationship between materiality and audit
risk
When planning the audit, the auditor considers what would make the
financial statements materially misstated. The auditor’s assessment of
materiality, related to specific account balances and classes of
transactions, helps the auditor decide such questions as what items to
examine and whether to use sampling and analytical procedures. This
enables the auditor to select audit procedures that, in combination, can
be expected to reduce audit risk to an acceptably low level.
Consideration specific to smaller entities
In audits of small entities, an audit may be carried out entirely by the
audit engagement partner (who may be a sole practitioner). In such
situations, questions of direction and supervision of engagement team
member and review of their work do not arise as the audit engagement
partner, having personally conducted all aspects of the work, is aware
of all material issues. The audit engagement partner (or sole
practitioner) nevertheless needs to be satisfied that the audit has been
conducted in accordance with PSAs.
Additonal consideration in initial audit
engagements
The auditor should perform the following activities prior to starting an
initial audit;
A) Perform procedures regarding the acceptance of the client
relationship and the specific audit engagement [see PSA 220 for
additional guidance]
B) Communicate with the previous auditor, where there has been a
change of auditors, in compliance with relevant ethical
requirements