Engagement Quality Reviews
5.139
This section establishes requirements for performing engagement quality reviews for an audit organization that determines that an engagement quality review is an appropriate response to address quality risks. An engagement quality review is an objective evaluation of the engagement team’s significant judgments and the conclusions reached thereon.
5.140
Engagement quality reviews can contribute to audit quality by serving as a safeguard against erroneous or insufficiently supported audits, thereby mitigating audit risk.
5.141
The audit organization may determine that an engagement quality review is appropriate for all GAGAS engagements, specific types of GAGAS engagements, or specifically identified GAGAS engagements.39 The audit organization may determine that engagement quality reviews are not necessary to address quality risks.
Requirements: Eligibility to Serve as an Engagement Quality Reviewer
5.142
An audit organization using engagement quality reviews should establish policies and procedures that set forth the eligibility criteria to be appointed as an engagement quality reviewer or an assistant to an engagement quality reviewer. The policies and procedures should require that any engagement quality reviewer and any assistants to an engagement quality reviewer not be members of the engagement team and
have the competence and capabilities, including sufficient time, and the appropriate authority to perform the engagement quality review and
comply with applicable legal and ethical requirements, including those addressing threats to the objectivity of the engagement quality reviewer.
5.143
An audit organization using engagement quality reviews should establish policies and procedures that address circumstances in which the engagement quality reviewer’s eligibility to perform the engagement quality review is impaired and the appropriate actions to be taken by the audit organization. The audit organization should include in such policies and procedures notification to appropriate individuals within the audit organization if the engagement quality reviewer becomes aware of circumstances that impair the engagement quality reviewer’s eligibility.
Application Guidance: Eligibility to Serve as an Engagement Quality Reviewer
5.144
The audit organization may consider threats to objectivity created by an individual being appointed as the engagement quality reviewer after having been previously assigned to the engagement. In recurring engagements, the matters on which significant judgments are made often do not vary. Significant judgments made in prior engagements may continue to affect the engagement team’s judgments in subsequent engagements. Therefore, the ability of an engagement quality reviewer to perform an objective evaluation of significant judgments may be affected when the individual was previously involved with making those judgments. In such circumstances, it is important that appropriate safeguards are put in place to reduce threats to objectivity to an acceptable level.
Requirements: Performance of the Engagement Quality Review
5.145
An audit organization using engagement quality reviews should establish policies and procedures regarding the performance of the engagement quality review that address the following:
The engagement quality reviewer’s responsibilities to perform procedures at appropriate points in time during the engagement to provide an appropriate basis for an objective evaluation of the engagement team’s significant judgments and the conclusions reached thereon.
The responsibilities of the engagement partner or director in relation to the engagement quality review, including that
the engagement partner or director is precluded from releasing the audit report until after having received notification from the engagement quality reviewer that the engagement quality review is complete and
documentation is provided to the engagement quality reviewer to permit completion of the engagement quality review.
Circumstances when the nature and extent of engagement team discussions with the engagement quality reviewer about a significant judgment give rise to a threat to the engagement quality reviewer’s objectivity and appropriate actions to take in these circumstances.
5.146
In performing an engagement quality review, the engagement quality reviewer should do the following:
Read and obtain an understanding about information communicated to the engagement quality reviewer by the
engagement team regarding the nature and circumstances of the engagement and the entity and
audit organization related to its monitoring and remediation process, in particular, identified deficiencies that may relate to, or affect, the areas involving significant judgments made by the engagement team.
Discuss with the engagement partner or director and, if applicable, other members of the engagement team, significant matters and significant judgments made in planning, performing, and reporting on the engagement.
Based on the information obtained in paragraph 5.146 (a) and (b), review selected engagement documentation relating to the engagement team’s significant judgments and evaluate the following:
The basis for making those significant judgments, including, when applicable to the type of engagement, the engagement team’s exercise of professional skepticism.
Whether the engagement documentation supports the conclusions reached.
Whether the conclusions reached are appropriate.
Evaluate whether appropriate consultation has taken place on difficult or contentious matters or matters involving differences of opinion and the conclusions arising from those consultations.
Evaluate the basis for
the engagement partner’s or director’s determination that the engagement partner’s or director’s involvement has been sufficient and appropriate throughout the engagement such that the engagement partner or director has the basis for determining that the significant judgments made and the conclusions reached are appropriate given the nature and circumstances of the engagement and
the engagement partner’s or director’s determination that independence and ethical requirements have been fulfilled.
Review
for audits of financial statements, the financial statements and the auditor’s report thereon, including, if applicable, the description of the key audit matters;
for reviews of financial statements or financial information, the financial statements or financial information and the audit report thereon; or
for other engagements, the audit report, and when applicable, the subject matter information.
5.147
If an engagement quality reviewer has concerns that the engagement team’s significant judgments or conclusions are not appropriate, the engagement quality reviewer should notify the engagement partner or director. If such concerns are not resolved to the engagement quality reviewer’s satisfaction, the engagement quality reviewer should notify appropriate individuals in the audit organization that the engagement quality review cannot be completed.
Application Guidance: Performance of the Engagement Quality Review
5.148
Frequent communication between the engagement team and engagement quality reviewer throughout the engagement may facilitate an effective and timely engagement quality review.
5.149
The audit organization’s policies and procedures may specify the nature, timing, and extent of the procedures that the engagement quality reviewer performs and may emphasize the importance of the engagement quality reviewer exercising professional judgment in performing the review.
5.150
Examples of significant judgments and conclusions include
matters relating to planning the engagement, including the identification of suitable criteria and the composition of the engagement team;
conclusions on the results of procedures performed by the engagement team on significant areas of the engagement;
the evaluation of work performed by specialists and conclusions drawn thereon; and
the overall assessment of the sufficiency and appropriateness of evidence.
5.151
The audit organization’s policies and procedures may specify the individual or individuals in the audit organization to be notified if the engagement quality reviewer has unresolved concerns that the engagement team’s significant judgments or conclusions are not appropriate. With respect to such unresolved concerns, the audit organization’s policies and procedures may also require consultation within or outside the audit organization.
Requirement: Completion of the Engagement Quality Review
5.152
When an engagement quality review is performed, the engagement quality reviewer should notify the engagement partner or director when the engagement quality review is complete.
Requirement: Engagement Quality Review Documentation
5.153
When an engagement quality review is performed, the engagement quality reviewer should document
the names of the engagement quality reviewer and individuals who assisted with the engagement quality review;
that the procedures required by the audit organization’s policies on engagement quality reviews have been performed;
that the engagement quality reviewer is not aware of any unresolved matters that would cause the engagement quality reviewer to believe that the significant judgments that the engagement team made and the conclusions it reached were not appropriate;
the notifications required in accordance with paragraphs 5.147 and 5.152; and
the date of completion of the engagement quality review.
Application Guidance: Engagement Quality Review Documentation
5.154
The form, content, and extent of the documentation of the engagement quality review may vary based on factors such as
the nature and complexity of the engagement,
the nature of the entity,
the nature and complexity of the matters subject to the engagement quality review, or
the extent of the engagement documentation reviewed.