Definition
Under SQMS 1, a firm sets criteria for engagements that need an engagement quality review, often called EQR. SQMS 2 sets who may perform it: a reviewer outside the engagement team, with the competence and authority for the role, who meets objectivity and cooling-off requirements. The review covers significant judgments and the conclusions on the report, before it is dated.
Why it matters in an audit or review
An EQR adds a second look at the highest risk matters, such as going concern, fraud risk responses and complex estimates. Peer reviewers check whether required reviews were performed, documented and timely, so gaps are a recurring finding.
Example
Illustrative: a firm requires an EQR for all audits of entities with debt covenants. The reviewer spends 6 hours on a $25,000,000 client, focusing on revenue risk and the going concern evaluation, and signs off on March 10 before the March 14 report date.
Common mistakes
- Completing the review after the report is released.
- Using a reviewer who worked on the engagement.
- Documenting the sign-off but not what the reviewer examined.
FAQ
When must an engagement quality review be complete?
Before the engagement report is dated and released, with the review documented in the file.
Sources
- AICPA, Statement on Quality Management Standards No. 1, A Firm's System of Quality Management (criteria for engagement quality reviews)
- AICPA, Statement on Quality Management Standards No. 2, Engagement Quality Reviews
- AICPA, AU-C Section 220, Quality Management for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error