The PCAOB on Tuesday will vote on adopting an auditing standard, Engagement Quality Review, which would require EQRs to be performed by an independent reviewer and would supersede the existing concurring partner review requirement.
The new standard would require an EQR for audits and reviews of interim financial information (“interim reviews”), but not for other engagements performed according to the standards of the PCAOB.
The standard was first proposed in February 2008 and revised in March , when the board emphasized that the role of a reviewer differs significantly from that of an engagement partner.
Poorly performed second-partner reviews are among the more frequently observed concerns cited in the board’s inspection reports, PCAOB board member Steven B. Harris said at the March 4 open meeting. The new standard would specify and enhance the reviewer’s responsibility to validate audit quality.
“By requiring registered firms to provide every audit engagement with a competent, independent reviewer—emphasizing the integrity and objectivity of the process—this EQR standard would significantly further the board’s mission to protect investors,” Harris said. “The proposal directs the reviewer to evaluate the significant judgments made and conclusions reached by the engagement team, to hold discussions with the engagement team and to review documentation.”
For example, the revised standard includes the following:
- A clearly stated objective for the reviewer that is consistent with specific requirements for the engagement quality review;
- A refinement of reviewer qualifications that requires the reviewer to be a partner or similar member of the firm, or to be unaffiliated with the firm;
- A requirement that an audit engagement partner be prohibited from serving as the reviewer on that engagement for at least two years;
- A requirement that EQRs for interim reviews be tailored to address the specific procedures performed during those reviews; and
- A clarification of documentation requirements, including identification of the reviewer, the documents reviewed, a description of any significant discussions that took place, and the date a concurring approval was made.
The board also recognized that an effective review should not amount to a re-audit, a concern addressed by some issuers and registered firms that believed this standard would significantly increase the time required to perform the review.
In other business, the board on Tuesday also will consider issuing a concept release soliciting comment on whether the engagement partner should be required to sign the audit report.
Tuesday’s meeting is open to the public. A live Webcast will be accessible via a link on the PCAOB’s Web site, pcaobus.org, starting at 10 a.m. Eastern. A podcast of the meeting will be made available later that day.
More information on this proposal, including comments, can be found on the PCAOB Web site, pcaobus.org/Rules/Docket_025/index.aspx.