Quality management at the engagement level: AU-C 220 as amended by SAS 146

In this lesson you will

Explain the engagement partner’s overall responsibility for managing and achieving quality
Identify the partner’s review responsibilities before dating the report
Apply the requirements on resources, consultation and differences of opinion
Document the stand-back conclusion required before dating the report

Scope and timing

SAS 146 amends AU-C 220 to align audits with the firm-level quality management standards. It is effective for engagements conducted in accordance with GAAS for periods beginning on or after December 15, 2025 (SAS 146, paragraph 10). Its objective is to manage quality at the engagement level to obtain reasonable assurance that the auditor has complied with professional standards and legal and regulatory requirements and that the report is appropriate (paragraph 11).

Overall responsibility and involvement

The engagement partner takes overall responsibility for managing and achieving quality on the audit, including creating an environment that emphasizes the firm's culture and expected behavior, and must be sufficiently and appropriately involved throughout the engagement to have a basis for determining whether significant judgments and conclusions are appropriate (paragraph 13). The environment emphasizes that everyone contributes to quality, ethics, open communication without fear of reprisal, and professional skepticism (paragraph 14). The partner may assign procedures, tasks or actions to others but keeps overall responsibility through direction, supervision and review (paragraph 15).

Ethics and acceptance

The partner understands the relevant ethical requirements, makes the team aware of them and the firm's policies, evaluates threats that come to attention, stays alert for breaches and, before dating the report, takes responsibility for determining whether relevant ethical requirements, including independence, have been fulfilled (paragraphs 16-21). The partner determines that the firm's acceptance and continuance policies were followed and uses that information in planning (paragraphs 22-24).

Resources

The partner determines that sufficient and appropriate resources are assigned or made available on time, that the team (with external specialists and internal auditors providing direct assistance) collectively has the competence, capabilities and time to perform the audit, and takes action if resources are insufficient (paragraphs 25-28).

Direction, supervision and review

The partner takes responsibility for direction, supervision and review, planned and performed under firm policies and responsive to the engagement (paragraphs 29-30). The partner reviews documentation at appropriate points on significant matters and significant judgments, including difficult or contentious matters (paragraph 31). On or before the report date, the partner determines through review and discussion that sufficient appropriate evidence supports the conclusions (paragraph 32). Before dating, the partner reviews the financial statements, the report and related documentation (paragraph 33), and reviews formal written communications to management, those charged with governance or regulators before they are issued (paragraph 34).

Consultation, EQR and differences of opinion

The partner takes responsibility for consultation on difficult or contentious matters and other matters requiring it, and determines that conclusions are agreed and implemented (paragraph 35). When an EQR is required, the partner determines a reviewer was appointed, cooperates, discusses significant matters and does not release the report until the EQR is complete (paragraph 36). Differences of opinion follow firm policy, and the partner does not date the report until they are resolved (paragraphs 37-38).

Monitoring and the stand-back

The partner understands monitoring information from the firm and network, determines its effect on the engagement and reports relevant information back (paragraph 39). Before dating the report, the partner determines that he or she has taken overall responsibility for managing and achieving quality, including that involvement was sufficient and appropriate (paragraph 40). Documentation covers ethics and acceptance issues, consultations and EQR completion before release (paragraph 41). See AU-C 220 and the SAS 146 guide.

Common file problems

Partner sign-offs all dated the day before the report date.
No evidence of review of significant judgments during fieldwork.
No documented stand-back conclusion.
Governance letters issued without partner review.

Worked example

Quarry Street Bakery audit: the partner’s stand-back

Partner Elena Voss is ready to date the 2026 audit report for Quarry Street Bakery, Inc. Before dating, she documents the stand-back under paragraph 40.

Involvement evidence:

Led the planning meeting on February 3, 2027 and approved the risk assessment on February 10.
Reviewed the inventory obsolescence estimate (a significant risk) on March 4 and asked for an additional analysis of slow-moving items, which the team completed on March 9.
Discussed the revenue cutoff exceptions with the manager on March 11.
Reviewed the financial statements, report and governance letter on March 15.
Hours: 38 of 520 total (7.3 percent).

Ethics: independence confirmations from all 5 team members and from an external valuation specialist obtained; one nonattest service (tax return preparation) evaluated, with management's designated individual documented.

Resources: the team requested an IT specialist for the new ERP; the firm assigned one in January.

Consultation: the firm's technical partner was consulted on a lease modification; the conclusion was agreed and reflected in the disclosure.

Differences of opinion: none. EQR: not required under firm criteria.

Conclusion: she has taken overall responsibility for managing and achieving quality, her involvement was sufficient and appropriate, and the nature and circumstances of the audit were considered. She dates the report March 16, 2027.

Self-check

Answer each question before you open the answer.

Can the engagement partner delegate the review of significant judgments to the manager?
Show answer
The partner can assign tasks but keeps overall responsibility (paragraph 15), and must review audit documentation relating to significant matters and significant judgments at appropriate points (paragraph 31).
What must the partner determine about ethics before dating the report?
Show answer
Whether relevant ethical requirements, including those related to independence, have been fulfilled (SAS 146, paragraph 21).
What is the stand-back requirement?
Show answer
Before dating the report, the partner determines that he or she has taken overall responsibility for managing and achieving quality, including sufficient and appropriate involvement throughout the audit (SAS 146, paragraph 40).

Sources

Back to the syllabus

Standards are paraphrased from the primary sources listed above; read the source before relying on a requirement. This lesson is training material, not professional advice. Report an error