When to withdraw from an audit instead of reporting
When ISA 200 lets an auditor withdraw rather than modify the opinion, how that differs from a disclaimer, and how to handle and record the decision.
By Achekam · · 6 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
Some audits reach a point where the honest answer is that the team cannot do the job it was appointed to do. The directors will not give access to a subsidiary's records. The bank statements the client produced do not match what the bank says, and nobody will explain why. Management refuses to let the team speak to the company's lawyers. The partner then faces a choice between two unwelcome outcomes: issue a report saying the team could not form a view, or walk away.
Neither choice should be made in a hurry or in a corridor. This article explains where ISA 200 allows withdrawal, how withdrawing differs from disclaiming, and how to record the decision so the file can defend it later.
What ISA 200 says when an objective cannot be met
ICAEW explains that ISA 200 sets the auditor's overall objectives as obtaining reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and reporting on the statements in line with the auditor's findings. Each individual ISA carries its own objective in service of those overall ones.
When one of those individual objectives cannot be achieved, and that stops the auditor achieving the overall objectives, ICAEW explains that ISA 200 requires the auditor to modify the opinion or, where permitted, withdraw from the engagement. ICAEW's guide on the importance of achieving audit objectives sets this out with the paragraph references, and it is the right page to send a manager who asks where the option comes from.
Two phrases in that requirement deserve attention. "Modify the opinion" is the default route: the auditor still reports. "Where permitted" means withdrawal is not always open, and the partner has to establish that it is before treating it as an option.
A disclaimer and a withdrawal are different outcomes
ICAEW describes a disclaimer of opinion as the report given when the auditor cannot obtain sufficient appropriate evidence and the possible effect is material and so pervasive that the auditor cannot form a view on whether the statements give a true and fair view.
The practical differences matter to the client and to the firm:
| Disclaimer of opinion | Withdrawal | |
|---|---|---|
| Is a report issued? | Yes, saying no opinion is expressed and why | No auditor's report on these statements |
| What users learn | The reasons the auditor could not conclude | That the auditor has left office, through whatever notice the law requires |
| The client's next step | Live with a report it will not like | Find and appoint another auditor |
| What the file must show | The evidence that could not be obtained and why the effect is pervasive | The same, plus why withdrawal was permitted and the better course |
A disclaimer still gives users something: an explanation. A withdrawal gives them silence, and a successor who will ask why. Withdrawal tends to make sense where the problem goes beyond missing evidence to the client's integrity, such as management that will not co-operate at all or appears involved in what the team cannot see, so that staying associated with the client is itself the risk. Modified audit opinions covers the reporting routes in more depth.
When withdrawal may not be allowed
Whether an auditor can resign part-way through depends on the law under which it was appointed and on its regulator's rules. Company law, the entity's founding documents, public sector audit legislation and regulator requirements can all bear on whether resignation is possible, what notice must be given and to whom, and whether the reasons must be reported. Before a partner treats withdrawal as available, the firm should confirm the position for that client and that country, and take legal advice where it is unclear. Do not assume the answer for a South African company carries over to a Nigerian or Kenyan one.
Withdrawal can also come up after the report. ACCA explains that where management refuses to amend the financial statements for a subsequent event discovered after the auditor's report was signed, the auditor must take all steps required to prevent third parties relying on that report, and should consider whether to resign.
Ethics points the same way from another direction. Under the IESBA Code, if a threat is not at an acceptable level, the accountant must eliminate the circumstance creating it, apply safeguards that reduce it to an acceptable level, or decline or end the engagement where safeguards cannot do so. A client that misleads the audit team can create exactly that kind of threat.
Consult before deciding, and record each view
A withdrawal decision should never rest with one person. Before the engagement partner decides:
- Set out in writing what evidence could not be obtained, what was tried and what the client said.
- Assess whether the possible effect is material and pervasive, or confined to an area a qualified opinion could deal with.
- Confirm, with legal advice if needed, whether withdrawal is permitted for this client and what notices it requires.
- Consult someone outside the engagement team, such as another partner or the firm's technical function.
- Discuss the matter with those charged with governance and record their response.
- Record the decision, the reasons and who agreed.
In Achekam, staff can take a technical consultation on the engagement from question to conclusion and closure, which keeps the question, the advice and the conclusion together. Where people disagree, for example the engagement partner wants to disclaim and the consulted partner thinks withdrawal is right, the firm can record a difference of opinion with each party's position, how it was escalated and how it was resolved. That record is exactly what a later reviewer will look for.
Recording the end in Achekam
Once the decision is made, the engagement needs to show it. Staff open the engagement and change its status, and under the firm's governance rules that change may need a partner's approval, so a firm can make sure no withdrawal is recorded without one.
Where the client keeps its books on Achekam and has appointed the firm through client books, either the business or the firm can end that appointment. Achekam asks for a reason, keeps it on the record and shows it to the other side. When the appointment ends, the firm loses access to the client's books and the business keeps them. Write the reason as you would want a regulator to read it: factual, brief and consistent with the file.
What to tell the client, and what to keep
Tell the client in writing what the firm has decided and why, in neutral terms, and what it now needs to do, usually appoint another auditor and deal with any statutory notice. Do not discuss the reasons with third parties beyond what the law requires, and expect a professional clearance request from the incoming auditor; answer it from the file.
Keep the unanswered evidence requests, the consultation, any difference of opinion, the communications with those charged with governance, the advice on whether withdrawal was permitted and the letter to the client. For the wider steps of leaving a client, including fees and handover, see disengaging from a client.
Withdrawals are rare, which is why they are scrutinised. A file that shows the problem, the options weighed, the people consulted and the reasons given lets the firm explain itself to anyone who asks.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
