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:
- Human Resources: Recruiting, hiring, training, performance evaluations, and promotion must ensure staff have appropriate competence and capabilities.
- Engagement/Client Acceptance and Continuance: Policies to accept or continue clients that uphold integrity, competency, and independence. Must document any withdrawal decisions.
- Leadership Responsibilities: “Tone at the top” — leadership must prioritize quality over commercial interests, with clear accountability.
- Performance: Consistent high performance, proper supervision, standard documentation, consultation on complex matters, and engagement quality control reviews when required.
- Monitoring: Ongoing monitoring, peer reviews, wrap-up reviews, and corrective actions to ensure the system operates effectively.
- 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.
๐ 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.
๐ Helpful References
๐ Strengthen your audit quality control — every engagement, every time!
