Hello,
Can you please elaborate this point to me.
In the UK, a partner joining an audit client should have had no invomlvement on the audit for a period of two years. If this gap is not possible, the firm should resign from the audit.

Thanks in advance
Mah

No answers :(
I hope Muhammad Amir, you may be of any help

Dear Mahjabeen,

I am still facing trouble in understanding your query can you please give me full context of it, however, what i have learned is that under paragraph 45 of the APBs(THE AUDITING PRACTICES BOARD) manual that A member should not take part personally in the audit of a company where he has been an officer(other than auditor) or employee in the last two years i.e if a person 'P' who has left a company 'C' in 1998 can't work as audit member in that company 'C' if his audit firm 'AF' has secured the external auditor's contract with that company 'C' in 2000, however, he can work as auditor at that client after passing two complete years.

It has also been stated in the manual THE AUDITING PRACTICES BOARD under paragraph 44 that Where a partner leaves the firm and is appointed as a director(including as non executive director) or to a key management position with an audit client, having acted as audit engagement partner(or as an independent partner, key audit partner or a partner in the chain of command) at any times in the two years prior to this appointment, the firm should resign as auditors. The firm should not accept re-appointment as auditors until a two year period, commencing when the former partner ceased to act for the client , has elapsed or the former partner ceases employment with the former client, whichever is the sooner.

If your original query evolves around these paragraphs then you can ask me for further interpretations and if not then kindly expend your query because it looks to me that you have left something unsaid in the original post.

Regards,

Muhammad Amir.

Dear Amir,
What I dont understand is , when an audit partner has left audit firm and joined clients company then is this the point where we have 2 years requirement.I believe when audit partner has left audit firm and joined client then why do we need any period requirement as now audit partner is not going to be involved in audit anymore as he has left audit firm.So there is no independence threat.Am I wrong?

hi mahjabeen
Take it this way if the audit partner gets involved in the clients finance dept. he would be knowing confidential matters and he can make individual benefit as a rogue person.

so where is the independence threat to audit firm here?

see the audit partner who joins client will be having good realitions with the his ex collegues of the audit firm and he can supply confidential information to them its like a relationship which has developed between him and the audit firm over the years when he used to be auditor in that way if u approch their is a indepence threat.

Dear Mah jabeen,

Now it's cleared that your query evolves around APBs para 44.

Dear you have asked that why there is restriction of 2 years where a partner of an audit firm has left the firm and joined the client under audit?

The answer has been given by APB's manual para-41 where it has been stated that Objectivity and Independence may be threatened where a director, an officer or an employee of the audit client who is in a position to exert direct and significant influence over the preparation of the financial statements has already been a partner in the audit firm or a member of the engagement team. Such circumstances may create self-interest, familiarity and intimidation threats, particularly when significant connections remain between the individual and the audit firm.

In above para i have highlighted the word significant influence APB's manual para 38 says that Where former partner in the audit firm joins the audit client, the audit firm should take action as quickly as possible - and, in any event, before any further work is done by the audit firm in connection with the audit - to ensure that no significant connections remain between the firm and the individual

APB's para-39 tells how the audit firm should reduce significant connection

-All capital balances and similar financial interests be fully settled(including retirement benefits)unless these are made in accordance with pre-determined arrangements that can't be influenced by any remaining connections between the individual and the firm; and

-The individual does not participate or appear to participate in the audit firm's business or professional activities.



You can now put your query in line with these standards and see the solution let i give you some examples,for instance there might be a chance that recently retired partner of an audit firm has good relations with the current engagement partner of the company under audit this comes under the header of familiarity of para 41 and the indepandence of the audit firm will impair, similarly there might be a possibility that audit firm owes huge amounts to recently retired partner and there is a high chance that indepandence of the audit firm will impair, that is why the APB has imposed 2 years restriction.

I hope this will be of enough help to you.

Regards,

Muhammad Amir

Ya, Amir that has really helped.So this 2 years period starts when audit partner leaves audit firm or when he joins client`s company?

Dear Mahjabeen,

APB's para 40 says that this perid will start once the partner has informed that audit firm that he is leaving the firm or he has informed that he has some stake in the client under audit.

Regards,

Muhammad Amir

Now I am happy with my query.
Thanks alot Amir and Abrar

Regards