PCAOB: Auditing Standards - Engagement Quality Review

Question 1

Applicability

Answer 1

requires an engagement quality review (and concurring approval of issuance) for engagements conducted under PCAOB standards (1) for an audit and (2) for a review of interim financial information.

Question 2

Objective

Answer 2

to perform an evaluation of the significant judgments made by the engagement team and the related conclusions reached and in preparing any engagement report(s).

Question 3

Qualifications of an Engagement Reviewer

Answer 3

(1) must be an “associated person” of a registered public accounting firm; and (2) must have competence, independence, integrity, and objectivity:

Question 4

Associated Person

Answer 4

should be able to withstand any pressure from the engagement partner or others and may be someone from outside the firm; if the reviewer is from within the firm, he/she should be a partner or have an equivalent position. (There is no such requirement for a reviewer from outside the firm.)

“An outside reviewer who is not already associated with a registered public accounting firm would become associated with the firm issuing the report if he or she … (1) receives compensation from the firm issuing the report for performing the review or (2) performs the review as agent for the firm issuing the report.”

Question 5

Cooling off restriction

Answer 5

the person serving as engagement partner during either of the two audits preceding the audit subject to engagement quality review is not permitted to serve as engagement quality reviewer (unless the registered firm qualifies for a specific exemption to this requirement).

Question 6

Engagement quality review process

Answer 6

to evaluate the significant judgments and conclusions of the engagement team, the engagement quality reviewer should (1) hold discussions with the engagement partner and other members of the engagement team; and (2) review documentation.

Question 7

Evaluation of engagement documentation

Answer 7

the engagement quality reviewer should evaluate whether the documentation that was reviewed (1) indicates that the engagement team responded appropriately to significant risks; and (2) supports the conclusions reached by the engagement team.

Question 8

Concurring approval of issuance

Answer 8

1. The engagement quality reviewer cannot express such approval if there is any “significant engagement deficiency” (when (a) the engagement team failed to obtain sufficient appropriate evidence; (b) the engagement team reached an inappropriate overall conclusion; (c) the engagement report is not appropriate; or (d) the firm is not independent of its client).
2. The firm cannot give permission to the client to use the engagement report until the engagement quality reviewer provides concurring approval of issuance.

Question 9

Difference between PCAOB auditing standard and AICPAs SQCS

Answer 9

A.
Engagement quality review – SQCS do not require an engagement quality review for any type of engagement, whereas Auditing Standard No. 7 establishes such a requirement.
B. SQCS do not impose a “cooling off” restriction or a requirement that the reviewer must be an associated person of a registered public accounting firm.
C.
Concurring approval of issuance – While the AICPA’s SQCS do not require a concurring approval of issuance, any engagement quality review that is performed must be completed before the engagement report is released.
D.
Documentation retention and changes – SQCS do not specifically require that engagement quality review documentation must be retained with other engagement documentation and be subject to specific policies regarding retention and changes.