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IISQM-2
ENGAGEMENT QUALITY
REVIEW (EQR)

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What is an engagement quality review?

 An engagement quality review (EQR) is an integral part of

the audit process for many audits.
 An EQR is defined by the IAASB as an
 ‘objective evaluation of significant judgements made by the
engagement team and the conclusions reached thereon,
performed by the engagement quality reviewer (the reviewer) and
completed on or before the date of the engagement report’
 EQR ensures improvement of audit quality by assessing audit
team’s professional skepticism when making judgements
and whether the audit evidence supports the final
conclusions
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Appointment and eligibility of engagement
quality reviewers
 Reviewer cannot be a member of the audit engagement team so that they
remain objective and independent of the audit.
 The reviewer needs to consider whether the audit team has applied
appropriate professional skepticism.
 A two-year cooling off period is required before an audit engagement
partner can act as a reviewer for their former client.
 The reviewer must be competent and capable of performing the role
including understanding the legal and professional framework, firm policies
relevant to the engagement and have an appropriate knowledge of the
client industry.
 They should have an understanding and experience of similar engagements
and understand the responsibilities in performing and documenting an EQR.
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Appointment and eligibility of
engagement quality reviewers
 Reviewers must have appropriate authority within the firm to allow them to
challenge the audit engagement partner.
 The culture of the firm should be one where the views of the engagement
quality reviewer are treated with respect and not subject to influence or
pressure from the audit engagement partner.
 The reviewer must comply with relevant ethical requirements and the
provisions of laws and regulations relevant to the jurisdiction in which they
are operating.
 In the same way that an audit partner may be impacted by intimidation by
a client, and reviewer may be impacted by intimidation, for example if the
audit partner for the client is aggressive or dominant individual or the
reviewer has a reporting line to the engagement partner.
 The reviewer may be a member of the audit firm or external to the firm.
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Exam focus

 Candidates may be required to demonstrate an understanding

of why these criteria are in place either through discussion, or through
application to a scenario, for example, recognizing and explaining
where an ineligible person has assigned the role of the reviewer or has
been prevented from performing their role effectively.

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Scope of EQR
 ISQM 2 requires firms conduct an EQR on audits of :
1. listed companies
2. audits and other engagements where an EQR is required by
law or regulations and
3. audits or other engagements for which the firm determines
that an EQR is an appropriate response to address one or
more quality risks.

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Scope of EQR- ( examples)
1. Audits which involve a high level of complexity or judgement due to significant
accounting judgements with high degrees of uncertainty, such as banks or oil
exploration companies or where specialized skills and knowledge is required to
evaluate underlying subject matter such as greenhouse gas emissions.
2. Audits where significant issues have been encountered, such as a material
restatement of comparatives.
3. Audits or engagement for which unusual circumstances have been identified during
acceptance and continuance procedures, such as a disagreement with the previous
auditor.
4. Engagements involving reporting to be included in regulatory findings which may
contain a high degree of judgement, such as a listing prospectus.
5. Audits and engagements for which the firm has no prior experience.
6. The use of an EQR to mitigate ethical threats identified
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Exam focus

 Candidates may be required to identify situations where an EQR should

be performed either because it is required by legal or professional
requirements or because it is an appropriate response to a situation or
quality management risk arising in a scenario.

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Responsibilities of EQR
 In order to enhance the robustness of the EQR process, ISQM 2 clarifies the
responsibility of the reviewer.
 There is a requirement to perform procedures at different points in time during
the engagement, so the reviewer may be involved during the planning stage
as well as during the audit, rather than just at the completion stage.
 The reviewer is required to review and understand the significant judgements
made by the engagement team. They will assess whether the audit
engagement documentation supports those judgements and whether the
conclusions reached are appropriate.
 In doing so, the review will specifically evaluate whether the engagement
team has exercised professional scepticism in reaching those conclusions.

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Responsibilities of EQR
 The reviewer is also required to evaluate:
 the engagement partner’s determination that independence
requirements have been fulfilled, and

 Whether appropriate consultation has taken place on difficult or

contentious matters.

 Whether the engagement partner has sufficient and appropriate

involvement on the audit engagement to be able to assess the
judgements and conclusions reached by the engagement team.

 An audit report cannot be dated before the reviewer determines the

process is complete
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EXAM FOCUS

 Understanding the full responsibilities of the reviewer will enable

candidates to evaluate a scenario to determine whether an EQR has
been performed as required and to identify where deficiencies in the
process have occurred.

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Documentation

 ISQM 2 specifically requires the reviewer to be responsible for the

documentation of the EQR which must be filed with the audit
documentation.
 This must be sufficient to allow an experienced practitioner, having no
previous connection to the engagement to understand the nature,
timing and extent of the EQR procedures performed. Individual firms
may have policies and procedures that go further than this as part of
the System of Quality Management (SoQM) of the firm.
 Exam focus
 Candidates may be required to evaluate whether sufficient appropriate
documentation exists within a scenario or recommend improvements to
the firm’s SoQM to mitigate any weaknesses.
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