PCAOB ON ENGAGEMENT QUALITY REVIEW

Upon completion of this lesson, candidates should be able to:

Understand the auditor's responsibilities for an "engagement quality review" (and for concurring
approval of issuance) under PCAOB Auditing Standards.

Know the primary differences between the requirements of PCAOB Auditing Standards and the
AICPA's Statements on Quality Control Standards (SQCS).

Study Guide

I. Engagement Quality Review

II. Introduction and Overview
A. Applicability of Standard —Requires an engagement quality review (and concurring
approval of issuance) for engagements conducted under PCAOB standards (1) for an
audit; (2) for a review of interim financial information; and (3) for an attestation
engagement regarding compliance reports of brokers and dealers (or a review
engagement regarding exemption reports of brokers and dealers).
B. Objective of the Engagement Quality Reviewer—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).

Note

“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.”

C. Qualifications of an Engagement Quality Reviewer —(1) Must be an associated

person of a registered public accounting firm; and (2) must have competence,
independence, integrity, and objectivity:
1. Associated person of a registered public accounting firm —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.)
2. Competence—Must be qualified to serve as the engagement partner on the
engagement under review.
3. Objectivity—The engagement quality reviewer (and any assisting personnel)
should not make engagement team decisions or assume any responsibilities of
the engagement team.
4. “Cooling-off” restriction —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).
III. Engagement Quality Review for an Audit or a Review under PCAOB Standards
 A. Engagement Quality Review Process —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.
B. Evaluation of Engagement Documentation —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.
C. Concurring Approval of Issuance
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.
IV. Documentation of an Engagement Quality Review
A. Documentation should contain sufficient information to permit an experienced auditor,
having no prior association with the engagement, to understand the procedures
performed and conclusions reached by the engagement quality reviewer.
B. Documentation of an engagement quality review should be included in the engagement
documentation (and be subject to other PCAOB requirements regarding retention of and
changes to audit documentation).
V. PCAOB Standards Have Several Differences Relative to AICPA's Statements on Quality Control
Standards (SQCS)
A. Engagement Quality Review—SQCS do not require an engagement quality review for
any type of engagement, whereas the PCAOB establishes such a requirement.
B. Cooling-off Restriction—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 —SQCS REQUIRE any engagement quality review
performed be completed BEFORE the engagement report is released without requiring a
concurring approval of issuance.
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.

PCAOB on Engagement Quality Review Results--

Question 1
Which of the following statements is correct regarding characteristics required of an engagement
quality reviewer under PCAOB auditing standards?
● Only a partner of the registered public accounting firm conducting the audit can serve as an
engagement quality reviewer.

● 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.

● There is no requirement that the engagement quality reviewer must be independent from
the client involved, since the engagement quality reviewer cannot make engagement team
decisions or otherwise assume any responsibilities of the engagement team.

● The engagement quality reviewer is required to be a partner in a public accounting firm,

regardless of whether the reviewer is from within the firm or outside the firm responsible for
the audit engagement subject to the engagement quality review.
You Answered Correctly!
The PCAOB (specifically, AS Section 1220) states: "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 2
PCAOB standards applicable to an engagement quality review identify each of the following as examples
of a "significant engagement deficiency," EXCEPT for when
●
● The engagement team concluded that management's accounting estimates were
unreasonable.

● ● The engagement team reached an inappropriate conclusion.

● ● The firm is not independent of its client.

● ● The engagement report is inappropriate.

You Answered Correctly!
The PCAOB (specifically, AS Section 1220) identifies the following as "significant engagement
deficiencies": when (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. 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
Which of the following is NOT a correct statement regarding DIFFERENCES between PCAOB auditing
standards on engagement quality review and AICPA Statements on Quality Control Standards (SQCS)?
● 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 auditing standards require engagement quality review documentation to be retained
separately from the related engagement documentation for 10 years, whereas SQCS only
require that the engagement quality review documentation be retained for 5 years with the
other related engagement documentation.

● PCAOB auditing standards require an engagement quality review before an audit report is
released, whereas SQCS do not require an engagement quality review.
You Answered Correctly!
The PCAOB (specifically, AS Section 1220) identifies a number of differences relative to the AICPA's
quality control standards, including those stated in the first, second, and last choices. However, the
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.
Hence, C is correct.
Question 4
To evaluate the significant judgments and conclusions of the engagement team under PCAOB auditing
standards, the engagement quality reviewer should
● Make inquiries of client personnel and perform analytical procedures.

● Perform tests of details and analytical procedures to corroborate client account balances.

● Make inquiries of client personnel and selected members of the engagement team.

● Discuss matters with members of the engagement team, including the engagement partner,
and review engagement documentation.
You Answered Correctly!
The 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. The engagement quality reviewer is 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. Hence, the last choice is the correct answer.

TBS - ACO0096 AUDIT REPORTS

AICPA Professional Standards provide guidance on the language that should be used
in the auditor's report. Select the most relevant AICPA template for the continuing
auditor's "unmodified" report on consolidated comparative financial statements
from the applicable Statement on Auditing Standards.
Enter your response in the answer fields below. Guidance on correctly structuring
your response appears above and below the answer fields.
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