September 2000

The NYSSCPA offers assistance with members' questions on ethics and regulation. Inquiries address a variety of topics such as:

Fee for Communicating with Successor Auditor

Q. We are the successor auditors for a new client. The predecessor auditors said they will not communicate with us unless they are paid a fee. Can they do that?

A. AU section 315.10 says, "The predecessor auditor should respond promptly and fully, on the basis of known facts, to the successor auditor’s reasonable inquiries. However, should the predecessor auditor decide, due to unusual circumstances such as impending, threatened, or potential litigation; disciplinary proceedings; or other unusual circumstances, not to respond fully to the inquiries, the predecessor auditor should clearly state that the response is limited."

Based upon the above, the predecessor has an obligation to communicate fully with the successor unless "unusual circumstances" cause him or her to decide not to. There is no discussion of charging a fee and, therefore, no clear prohibition.

Earlier Similar Management Consulting Service Study with Negative Outcome

Q. A prospective client has asked a member’s firm to study the desirability of his using a newly developed electronic ticketing system for his business. A recent study made for another client leads the member’s firm to believe that the system would not be desirable for him. Must the firm state its reservations at the risk of disclosing information acquired while performing an assignment for a client competitor?

A. Rule 301 provides that a member shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client. Knowledge and expertise that results in a special competence in a particular field can be provided to a client without violating the confidence of another client. Reservations that the firm may have concerning the electronic ticketing system should be communicated to the prospective client provided that the details of the other client’s engagement are not disclosed. If, however, circumstances are such that the prospective client would clearly know the origin of the information on which the member’s reservations are based, and such information is sensitive, the engagement should not be accepted without clearance from the first client.

Sale of Products to Clients

Q. May a member purchase a product from a third-party supplier and resell the product to a client without violating the commissions rule?

A. Yes, if a member purchases a product and resells it to a client, any profit on the sale would not constitute a commission. Purchasing entails taking title to the product and having all the associated risks of ownership.