Integrity of the client
The reason for the proposed change in auditors should be ascertained via discussion with the directors. It is possible that the reason may prevent acceptance of the nomination (e.g. the existing auditors intend to qualify their opinion and your firm agrees with their view).
The permission of Farrow Pharmaceuticals must be sought in order to communicate with the existing auditors to assess any reasons for not accepting the nomination. If permission is not granted, this should be carefully considered when deciding whether to accept appointment, especially in the light of the reasons given by the directors. If the reasons differ, this will reflect upon the directors’ integrity and it might be better to decline the nomination.
Farrow Pharmaceuticals’ reputation (employee relations, investigation by the authorities and any other adverse opinions) will also impact on the assessment of the directors’ integrity.

Auditor independence
Auditor independence should not be in any doubt. For example, there should be no family or personal relationships with key staff at Farrow Pharmaceuticals, or beneficial shareholdings in Farrow Pharmaceuticals held by audit staff.
If existing audit clients have any relationships with Farrow Pharmaceuticals (e.g. competitor, supplier, customer) a conflict of interest could arise. As a small firm (only four partners) appropriate safeguards may not be feasible.
The firm must also be careful not to become unduly dependent on fees from one client in the future as this might create a self-interest or intimidation threat. As a listed company, Farrow Pharmaceuticals is a public interest entity and the rules on fees given in the IZBA International Code of Ethics for Professional Accountants are stricter than for other entities. If Farrow Pharmaceuticals’ combined fees will exceed 15% practice income, extra safeguards apply.
Furthermore, an audit fee based on a percentage of profits is a contingent fee which creates a self-interest threat to objectivity as it would be in the auditors’ interests to allow profits to be overstated. Even if the auditors would not allow this to happen, the acceptance of an appointment with such a bonus would detract from the appearance of objectivity.