A PCAOB report released Friday instructs audit firms to take steps to ensure that engagement quality reviews detect the audit deficiencies they are meant to identify.
Although firms’ methodologies reviewed by the PCAOB were generally consistent with the requirements of Auditing Standard No. 7, Engagement Quality Review, the report says a number of audit deficiencies discovered by board inspectors should have been identified by the engagement quality reviewer.
Auditing Standard No. 7 requires an engagement quality review for every audit engagement.
The report suggests that:
- PCAOB-registered firms consider whether the types of deficiencies identified in the report could occur at their firms.
- Firms monitor the effectiveness of engagement quality reviews.
- Firms provide training and guidance and hold engagement quality reviewers accountable for their work.
- Engagement quality reviewers make sure they understand Auditing Standard No. 7 well enough to complete the required procedures.
- Engagement quality reviewers allow enough time to complete the procedures appropriately and understand the judgments and conclusions of the engagement team.
- Audit committees use the report to fulfill their oversight responsibilities.
Engagement quality reviews can contribute to audit quality by serving as a safeguard against erroneous or insufficiently supported audit opinions, according to the PCAOB. The requirements for engagement quality reviews are designed to provide a meaningful check on the work performed by the engagement team.
The report is based on the PCAOB’s 2011 inspections of 213 registered firms, and approximately 820 audit engagements.
—Ken Tysiac (email@example.com) is a JofA senior editor.