Engagement Quality in Audits: SQCS Elements, Reviews, and PCAOB Requirements

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Engagement Quality in Audits: SQCS Elements, Reviews, and PCAOB Requirements

Overview: Engagement quality is the backbone of audit credibility. The AICPA’s Statements on Quality Control Standards (SQCS) define how CPA firms must design, implement, and monitor a system of quality control that covers all audit and attestation engagements. Here’s how it works in practice — including PCAOB requirements for issuer audits.

✅ Six Elements of Audit and Assurance Engagement Quality

The six interrelated elements under SQCS are:

  1. Human Resources: Recruiting, hiring, training, performance evaluations, and promotion must ensure staff have appropriate competence and capabilities.
  2. Engagement/Client Acceptance and Continuance: Policies to accept or continue clients that uphold integrity, competency, and independence. Must document any withdrawal decisions.
  3. Leadership Responsibilities: “Tone at the top” — leadership must prioritize quality over commercial interests, with clear accountability.
  4. Performance: Consistent high performance, proper supervision, standard documentation, consultation on complex matters, and engagement quality control reviews when required.
  5. Monitoring: Ongoing monitoring, peer reviews, wrap-up reviews, and corrective actions to ensure the system operates effectively.
  6. Ethical Requirements: Independence, integrity, objectivity — personnel must confirm compliance at least annually.

✅ Engagement Quality Control Reviews (EQCRs)

An EQCR provides an objective evaluation of the engagement team’s significant judgments and conclusions before the report is released. Firms must:

  • Appoint a qualified, independent reviewer not involved in the engagement.
  • Complete the EQCR before the report is issued.
  • Ensure the reviewer evaluates significant findings, judgments, documentation, and report appropriateness.

Under PCAOB standards, issuer audits require an EQCR with a concurring approval of issuance — the reviewer must confirm that no significant engagement deficiencies exist.

✅ PCAOB Requirements for Issuer Engagements

  • Required EQCR: All issuer audits and interim reviews must have an EQCR and concurring approval before the audit report is released.
  • Engagement Quality Reviewer: Must be competent, independent, objective, and not part of the engagement team.
  • Concurring Approval: The report cannot be released until the reviewer approves it.
  • Significant Deficiencies: A deficiency exists if sufficient appropriate evidence was not obtained, an inappropriate conclusion was reached, or the firm is not independent.

✅ Monitoring & Peer Review

Firms must monitor their system through:

  • Internal inspections and wrap-up reviews.
  • External peer reviews (required for AICPA membership every three years).

The goal is to ensure that policies remain effective, engagement documentation is complete, and corrective actions are taken when needed.

📌 Best Practices for Engagement Partners

  • Stay alert for noncompliance with ethics and independence.
  • Confirm client acceptance and continuance were done properly.
  • Ensure the team and specialists have sufficient competence.
  • Review significant judgments and documentation before signing off.

🔗 Helpful References

👉 Strengthen your audit quality control — every engagement, every time!

COCOMOCPA

Financial Controller / CPA

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