The Public Company Accounting Oversight Board has re-proposed for comment a standard for auditing firms to use for reviewing their audit reports internally by a second or concurring partner before they are issued.
The PCAOB first proposed a standard on engagement quality review on Feb. 26, 2008, and received 38 comment letters, some of which were negative. The board has largely been relying up to now on standards from the American Institute of CPAs’ Securities and Exchange Commission Practice Section.
The Sarbanes-Oxley Act of 2002 directs the board to include in its auditing standards a requirement that each registered public accounting firm “provide a concurring or second partner review and approval of [each] audit report (and other related information), and concurring approval in its issuance, by a qualified person (as prescribed by the board) associated with the public accounting firm, other than the person in charge of the audit, or by an independent reviewer (as prescribed by the board).”
Engagement quality review is an opportunity for the auditor to discover any significant engagement deficiencies before issuing its opinion. In an EQR, a qualified reviewer takes a fresh, objective look at the engagement and, based on that review, evaluates whether it is appropriate for the firm to issue its report. A well-performed EQR can be an effective safeguard against erroneous or insufficiently supported audit opinions and, accordingly, can contribute to audit quality and reduce the need for restatements.
Since issuing the original standard, the PCAOB has made extensive changes to the original proposal and is now seeking comment on the revised EQR standard. The proposal would supersede the board’s quality control standard, SECPS Requirements of Membership, Section 1000.08(f).
The proposed standard would apply to all audit engagements and engagements to review interim financial information conducted pursuant to the standards of the PCAOB. The proposed EQR standard provides a framework for an engagement quality reviewer to objectively evaluate the significant judgments made by the engagement team and the conclusions reached in forming an overall conclusion on the engagement.
“This proposed EQR standard focuses the engagement quality reviewer’s attention on those matters that increase the likelihood of identifying and correcting significant engagement deficiencies before the audit report is issued,” said PCAOB Chairman Mark W. Olson (pictured) in a statement. “The proposed standard would go a long way to improve the existing EQR process for public company audits.”
The PCAOB is seeking comment on the proposed standard for a 45-day period.
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