## **Learning Outcomes**

After this article, you will understand the purpose and process of engagement quality reviews (EQR) as defined by ISQM 2, including when EQRs are required, the eligibility and responsibilities of reviewers, and the practical steps firms and audit partners must apply to ensure audit quality. You will be able to explain why EQRs matter for public interest and identify key exam pitfalls regarding EQR procedures.

## **ACCA Audit and Assurance (AA) Syllabus**

For ACCA Audit and Assurance (AA), you are required to understand how quality is ensured at the firm and engagement level, particularly through the use of engagement quality reviews as mandated by ISQM 2. Focus your revision on:

- The objective and scope of engagement quality reviews, and when an EQR is mandatory (ISQM 2).
- The responsibilities of the engagement partner regarding EQRs, including cooperation and timing.
- The eligibility requirements for engagement quality reviewers: independence, competence, and authority.
- The key activities performed during an EQR, such as review of significant judgements and conclusions.
- How EQRs contribute to quality management, especially for public interest and high-risk audits.
- The relationship of EQRs to engagement performance and firm-level quality policies.

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. In which circumstances is an engagement quality review (EQR) required for an audit engagement?
2. Name three key eligibility requirements for someone to serve as an engagement quality reviewer under ISQM 2.
3. True or false? The engagement partner can complete and sign the auditor’s report before the EQR has concluded.
4. List two main responsibilities of the engagement quality reviewer when performing an EQR.

## **Introduction**

Quality management is central to public trust in audit and assurance engagements. International Standard on Quality Management (ISQM) 2 establishes a framework for engagement quality reviews (EQR), which act as an additional layer of independent scrutiny over engagements that are either high-risk or of special public interest. An EQR is a focused review, carried out before the engagement report is finalized, aimed at ensuring that significant judgements made by the audit team are appropriate and that the report is suitable in the circumstances.

> **Key Term: engagement quality review (EQR)**
> An objective evaluation, conducted before the engagement report is signed, of the significant judgements made and conclusions reached by the engagement team for specified audit and assurance engagements.

### When is an Engagement Quality Review Required?

Firms are obligated to perform EQRs for:

- Audits of listed entities and other public interest entities (PIEs).
- Engagements with elevated risk, unusual circumstances, or as required by law or regulation.
- Other engagements the firm identifies as needing additional review to safeguard audit quality.

Application guidance extends the requirement to cases involving ethical challenges, emerging risks, new standards, or significant client or team changes.

### Responsibilities of the Engagement Partner

The engagement partner must:

- Check whether an EQR has been assigned when required.
- Ensure the reviewer has full access to all relevant audit documentation and team members.
- Notify team members about the reviewer’s involvement and expected cooperation.
- Not sign or date the auditor’s report until EQR completion.

> **Key Term: engagement partner**
> The partner or person with overall responsibility for the audit engagement and its quality, including compliance with professional standards.

### EQR Reviewer – Eligibility and Appointment

EQRs must be carried out by a reviewer who:

- Is not part of the engagement team.
- Possesses suitable experience and appropriate technical knowledge.
- Has sufficient authority and independence to challenge significant judgements.
- Is free from conflicts of interest and has not been involved in the engagement in any capacity.

Reviewers may be partners, senior staff, or suitably qualified external individuals appointed by the firm.

> **Key Term: engagement quality reviewer**
> An independent individual, either internal or external to the firm, who meets strict competence and ethical requirements and conducts the EQR.

### Key Activities in an Engagement Quality Review

During an EQR, the reviewer must:

- Evaluate the engagement team’s significant judgements, especially on complex, material, or contentious areas.
- Review significant risks, areas involving professional judgement, and key audit documentation.
- Assess the engagement partner’s basis for conclusions and reporting decisions.
- Confirm that sufficient appropriate evidence exists and that all required consultations have taken place.

### **Worked Example 1.1**

**Scenario:** A mid-sized audit firm is engaged to audit a listed company. Given the public interest, ISQM 2 requires the firm to appoint an EQR before signing the auditor’s report.

**Question:** What steps must the engagement partner and reviewer take according to ISQM 2?

> **Answer:** The engagement partner must ensure an EQR is assigned and notify the team to cooperate. The reviewer, who is not part of the audit team and meets eligibility requirements, must review significant judgements and key documentation and provide objective feedback before the auditor’s report is finalized.

### Reviewer Independence and Objectivity

Independence is essential. Reviewers must not have any relationships with the client or previous involvement in the engagement that could impair objectivity. Firms must have policies to identify and manage potential threats—such as long association or financial interests—before appointment.

> **Key Term: independence (EQR context)**
> The absence of circumstances that might compromise, or be perceived to compromise, the reviewer’s ability to provide an objective and impartial assessment of the engagement.

### Timing and Completion of the EQR

The EQR must be completed before the engagement report is signed or dated. If issues require resolution, the engagement partner and team must address these before proceeding. The EQR process should be documented thoroughly within the audit file, including details of all significant matters considered and conclusions reached.

### **Worked Example 1.2**

**Scenario:** An EQR reviewer identifies concerns over management’s judgement in recognizing revenue related to multi-element contracts, a major risk area.

**Question:** What is the reviewer’s responsibility, and what happens next?

> **Answer:** The reviewer must document their concern and discuss it with the engagement partner. The audit team must reconsider and address the matter appropriately. The EQR cannot be concluded, and the auditor’s report cannot be signed, until the issue is resolved to the reviewer’s satisfaction.

### EQR in Overall Quality Management

The EQR is part of the firm’s quality management system, working alongside other elements such as engagement supervision, direction, and review. It is seen as a safeguard against material errors, weak judgements, or lapses in professional scepticism.

> **Key Term: significant judgement**
> A decision made by the engagement team that has a substantial effect on the audit outcome, involving complexity, subjectivity, or professional judgement, and requiring heightened scrutiny.

## **Summary**

An engagement quality review provides independent, expert scrutiny over high-risk or high-profile engagements to support audit quality and public confidence. Under ISQM 2, EQRs must be performed by eligible reviewers, before the audit report is signed, with thorough evaluation of all significant judgements. The EQR process is a mandatory part of firm-level quality management, guaranteeing objectivity and robust challenge in key audit and assurance engagements.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Define engagement quality review and state when ISQM 2 requires it for an audit engagement.
- Outline the eligibility and responsibilities of an engagement quality reviewer.
- State the responsibilities of the engagement partner in supporting the EQR.
- List the significant judgements and areas the reviewer must assess during an EQR.
- Explain the need for reviewer independence and documentation of the EQR process.
- Summarize the importance of EQRs in firm-level quality management for public interest.

## **Key Terms and Concepts**

- engagement quality review (EQR)
- engagement partner
- engagement quality reviewer
- independence (EQR context)
- significant judgement

Firm-level quality management - Engagement quality reviews (ISQM 2)