II. Financial Statement Audits - PCAOB on Engagement Quality Review

Question 1

*According to PCAOB standards, each of the following items of information should be included in the documentation of an engagement quality review, what are those?

Answer 1

• Identification of the engagement quality reviewer and others who assisted the reviewer.
• Identification of the documents reviewed by the engagement quality reviewer and others who assisted the reviewer.
• The date on which the engagement quality reviewer provided concurring approval of issuance.

Note: There is no expectation that fraud issues will be routinely identified by the audit team, nor does the quality reviewer provide a separate assessment of such matters.

Question 2

The PCAOB (specifically, AS Section 1220) identifies the following as “significant engagement deficiencies”: when

Answer 2

(1) the engagement team failed to obtain sufficient appropriate evidence;
(2) the engagement team reached an inappropriate overall conclusion;
(3) the engagement report is not appropriate; or
(4) the firm is not independent of its client.

Note: Since B, C, and D [AU: avoid using letters for other answer choices here and below] are specifically identified as significant engagement deficiencies, A is the correct answer. If management’s accounting estimates are unreasonable, it constitutes a GAAP departure, not a deficiency in the performance of the audit engagement.

Question 3

What are some of the differences between PCAOB and SQCS?

Answer 3

PCAOB auditing standards require a concurring approval of issuance before the engagement report is released, whereas the SQCS have no such requirement.

PCAOB auditing standards require a cooling-off period of at least two years before an engagement partner can serve as an engagement quality reviewer, whereas the SQCS have no such requirement.

PCAOB requires the engagement quality review documentation to be retained along with (not separately from!) the related engagement documentation; and PCAOB auditing standards require such audit documentation to be retained for 7 years, not 10. Moreover, the AICPA’s SQCS do not require that the engagement quality review documentation be retained along with the related audit documentation.

PCAOB auditing standards require an engagement quality review before an audit report is released, whereas SQCS do not require an engagement quality review.

Question 4

What is some characteristic of an engagement quality reviewer?

Answer 4

• requires the engagement quality reviewer to be a partner (or have an equivalent position) only if the engagement quality reviewer is from the within the registered public accounting firm
• be an “associated person” of a registered public accounting firm and have competence, independence, integrity, and objectivity to perform the engagement quality review.
• an individual outside of the registered public accounting firm becomes an “associated person” of the registered public accounting firm when receiving compensation from the firm for performing the engagement quality review.
• Can be from within (must be a partner) or outside the firm (An associated person that receives compensation)

Question 5

To evaluate the significant judgments and conclusions of the engagement team under PCAOB auditing standards, the engagement quality reviewer should

Answer 5

PCAOB (specifically, AS Section 1220) requires the engagement quality reviewer to evaluate the significant judgments and conclusions of the engagement team by

• (1) holding discussions with the engagement partner and other members of the engagement team and
• (2) reviewing the engagement’s audit documentation.

They are not expected to:

• Direct inquiries to client personnel
• Or perform audit verification procedures to corroborate account balances, such as analytical procedures or tests of details.