Engagement quality control review: When two sets of eyes are better than one

A key element of quality control on an audit is a second pair of eyes to review engagement performance before the auditor’s report is issued.

A key element of quality control on an audit is a second pair of eyes to review engagement performance before the auditor’s report is issued. Sounds like a fine idea. And yet I wonder: is it possible to have too much of a good thing when it comes to engagement quality control review?

Auditing standards recognize the importance of requiring an engagement quality control review (EQCR) – an objective evaluation of the significant judgments made by the engagement team and the conclusions reached in formulating the report – for all audits of financial statements of listed entities and for certain other engagements.

The Canadian Public Accountability Board (CPAB) 2010 report, Inspections of the Quality of Audits Conducted by Public Accounting Firms, stated that “The EQCR is a critical element of quality control and a major contributor to achieving audit quality.” Not surprisingly, CPAB focuses attention on EQCR in its inspections to make sure that they have been performed appropriately.

An Information Paper published by the Transnational Auditors Committee (TAC) of the Forum of Firms includes specific steps or best practices to aid in complying with standards relating to EQCR, particularly the more judgmental areas affecting the performance of an EQCR. The Information Paper was compiled from numerous sources, including contributions from members of the Forum of Firms, and reflects TAC’s view that EQCR is particularly important in maintaining and enhancing audit quality.

When reading this document, I was struck by the key challenge of determining the appropriate nature, timing and extent of an EQCR – in other words the balance between being sufficiently involved in the audit to ensure an effective EQCR and being overly involved and thereby compromising the objectivity of the EQCR. The Information Paper addresses this challenge in presenting 11 matters identified by contributors that are commonly considered in an EQCR, and six ways in which contributors ensure the EQCR is performed and the intended benefits achieved in a timely manner.

Other matters covered in the Information Paper are “ideas for consideration” on:

  • policies and procedures for those engagements requiring an EQCR
  • criteria for eligibility of engagement quality control reviewers
  • EQCR documentation
  • dealing with differences of opinion between the reviewer and the engagement partner
  • initiatives to further strengthen EQCR

I expect that firms will find the Information Paper very useful as a reference source in structuring their EQCR practices and designing appropriate guidance materials. One topic that is not specifically addressed in the Information Paper, however, is the role of EQCR in evaluating the professional skepticism of the engagement team. By interacting with the engagement team during various stages of the engagement, and considering the significant judgments made and conclusions reached by the engagement team, the reviewer is in a key position to consider whether professional skepticism has been appropriately exercised and reflected in the audit documentation. It would be interesting to know if this is covered in some of the tools that firms provide to reviewers.

Keep the conversation going….do you think the EQCR performs a useful function in enhancing audit quality? Do you see areas where EQCR practices could be improved?

Post a comment below; or email me directly.


Conversations about Audit Quality is designed to create an exchange of ideas on global audit quality developments and issues and their impact in Canada.

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada