Audit firms may not be appropriately executing engagement quality review, according to the Public Company Accounting Oversight Board.
In a report on how registered firms have been implementing and complying with Auditing Standard No. 7, Engagement Quality Review, the board said that while firms’ methodologies were general consistent with the requirements of the standard, they did not always result in an appropriately executed engagement quality review.
The report is based on the PCAOB's 2011 inspections of 213 domestic and non-U.S. registered public accounting firms and approximately 820 audit engagements. The 2011 inspections included engagement quality reviews of the first audits for which firms were required to implement AS No. 7, which became effective for audits and interim reviews for fiscal years beginning on or after Dec. 15, 2009.
In a number of engagements in which the PCAOB’s inspection staff identified audit deficiencies, the staff concluded that the audit deficiency should have been identified by the engagement quality reviewer.
Observations from the board's 2012 inspections indicated that audit deficiencies and the related deficiencies in engagement quality reviews continued to be high, according to the report.
"As part of the PCAOB's oversight activities, the board reviews the implementation of our recently issued auditing standards," said PCAOB Chairman James Doty. "I encourage audit firms, engagement quality reviewers, audit committees, investors and others to review the report, which also describes the inspections staff's view of potential root causes of the deficiencies they observed related to Auditing Standard No. 7."
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