3063 Engagement Quality Reviewer Responsibilities

Dec-2023

Nature of an engagement quality review

The purpose of an engagement quality review is to have an objective evaluation of significant matters and significant judgments made by the engagement team, and the team's conclusions reached in formulating the assurance report. There is no restriction on the scope of the matters considered judgments for this purpose.

The engagement quality reviewer is not responsible for forming a conclusion on the quality of the engagement process as a whole. The engagement quality reviewer should consider compliance with professional standards and Office policies, and the sufficiency of engagement documentation when evaluating significant matters and significant judgments made by the engagement team, and the conclusions the team reached in formulating the assurance report.

Notwithstanding the involvement of an engagement quality reviewer, the overall responsibility for the assurance engagement and its quality remains with the engagement leader, including compliance with professional standards and applicable legal and regulatory requirements, and the appropriateness of the report issued.

The engagement leader’s responsibilities relating to the engagement quality review are outlined in OAG Audit 3062 Engagement Leader Responsibilities for Audit Quality.

The engagement quality reviewer should proactively estimate the time needed for review, and plan for his or her involvement at appropriate stages during the engagement. Notwithstanding the responsibility of the engagement leader and the engagement team to involve the engagement quality reviewer, the responsibility for ensuring effective and timely involvement of the engagement quality reviewer rests with the engagement quality reviewer as does the overall responsibility for the performance of the engagement quality review. Conducting the engagement quality review in a timely manner at appropriate stages during the engagement allows the team to promptly resolve significant matters and significant judgments made, to the engagement quality reviewer's satisfaction on or before the date of the assurance report.

When the engagement quality reviewer has concerns that the significant judgments made by the engagement team, or the conclusions reached thereon, are not appropriate, he or she should notify the engagement leader and document this notification in the engagement file. Those concerns should be followed-up and resolved in a timely manner with the appropriate members of the engagement team, including the engagement leader. Any differences of opinion should be resolved with reference to OAG Audit 3082 Resolution of differences of opinion.

Independence and impairment of the engagement quality reviewer’s eligibility post appointment

In order to maintain his or her objectivity, the engagement quality reviewer is not selected by the engagement leader or an assistant auditor general in the audit practice and does not otherwise participate in the assurance engagement during the period of review other than in the engagement quality reviewer role. The engagement quality reviewer does not make decisions for the engagement team and should not be subject to any engagement team discussions that would threaten his or her objectivity.

The engagement quality reviewer is required to meet the same independence requirements regarding the entity as the members of the assurance engagement team, as outlined in OAG Audit 3031 Independence. In the event that the engagement quality reviewer becomes aware of circumstances that impair his or her independence or eligibility, as outlined in OAG Audit 1081 Selection of engagement quality reviews and appointment of engagement quality reviewers, the engagement quality reviewer must take the following actions:

• notify the principal of methodology, Audit Services who is responsible for recommending the appointment for engagement quality reviewers; and

• either decline the appointment to perform the engagement quality review if the review has not commenced or discontinue the performance of the engagement quality review if it has commenced.

If the eligibility, which includes independence and objectivity, of the engagement quality reviewer has been impaired, the principal of methodology, Audit Services, should assign another eligible engagement quality reviewer. In doing so, the principal of methodology, Audit Services will follow the policies and procedures outlined in OAG Audit 1081 Selection of Engagement Quality Reviews and Appointment of Engagement Quality Reviewers. Factors to think about when considering impairment of the engagement quality reviewer’s eligibility to perform the engagement quality review include:

• whether changes in the circumstances of the engagement result in the engagement quality reviewer no longer having the appropriate competence and capabilities to perform the engagement quality review.

• whether changes in the other responsibilities of the engagement quality reviewer indicate that the individual no longer has sufficient time to perform the review; or

• changes in circumstances have a created a self-interest, a self-review or other threat to the engagement quality reviewer’s independence or objectivity.

An engagement quality reviewer adheres to the rotational requirements outlined in OAG Audit 1071 Job rotation.

Engagement quality reviewers are not to be involved in the inspection (i.e., practice review) of engagement files for which they have performed the engagement quality review.

To maintain his or her objectivity, the quality reviewer avoids being closely associated with the engagement or entity; accordingly, the quality reviewer does not serve in any role other than quality reviewer, either in relation to the engagement for which he or she has been appointed or any other engagement involving that entity.

The quality reviewer can be consulted by the engagement team and should be kept up to date about significant issues on a timely basis. However, these consultations cannot compromise the quality reviewer's eligibility to perform his or her role and make the objective evaluations expected. Where the nature and extent of the consultations become significant, both the engagement leader and the quality reviewer should take care to maintain the quality reviewer's objectivity. If he or she considers it necessary to maintain his or her objectivity, the quality reviewer should inform the engagement leader when consultations should be with another suitably qualified individual.

Formal consultations between the quality reviewer and the engagement team on difficult or contentious matters should be documented according to OAG Audit 3081 Consultations and OAG Audit 3082 Resolution of differences of opinion.

The involvement of the quality reviewer is not a substitute for normal procedures set up for consultation on technical issues, nor should the assignment of the quality reviewer prevent the engagement leader from consulting, as necessary, with others, including internal specialists or external experts, etc.

When consulting with the quality reviewer on an accounting, auditing, internal control, or other matter during the engagement, the engagement leader ordinarily develops an initial resolution to the matter before discussing it with the quality reviewer.

Obtaining the engagement quality reviewer’s view on initial judgments made by the engagement leader before consulting with others outside the engagement team can enhance the underlying quality of the judgment and avoid differences of opinion at a later stage of the engagement.

The team proactively involves the engagement quality reviewer during the audit to check alignment on significant judgments and conclusions. However, there is an important distinction to be drawn between the engagement team obtaining the engagement quality reviewer’s view on initial judgments made by the engagement leader, and the engagement team relying on the engagement quality reviewer to help make audit judgments or to make judgments on behalf of the engagement team. The latter can create a threat to the objectivity of the engagement quality reviewer.

The extent to which the quality reviewer may have contact with the entity, and the nature of that contact, needs to be considered in relation to the quality reviewer's continuing ability to remain independent from the engagement and make the objective evaluations expected in his or her role. Management and/or the entity's audit committee would not be expected to have direct contact with the quality reviewer in any way that would impair the quality reviewer's objectivity or where it could be perceived that the quality reviewer was acting as part of the engagement team or participating in an engagement decision-making capacity.

OAG Audit 1081 Selection of engagement quality reviews and appointment of engagement quality reviewers addresses the criteria used in assessing the technical qualifications required to perform the role of quality reviewer, including the necessary experience and authority.

Quality reviewer minimum review

The engagement quality reviewer should determine the extent of the quality review depending on the complexity and circumstances of the engagement and the risk that the report may not be appropriate in the circumstances.

The engagement quality reviewer should, at a minimum, consider and document his or her objective evaluation of the following, during an engagement quality review. A Quality Reviewer Checklist helps direct the minimum review expected.

The engagement quality reviewer should:

• read and obtain an understanding of information communicated by the Office related to the Office’s monitoring and remediation process in particular Office wide findings that may relate to, or affect, the areas involving significant judgments made by the engagement team.

• evaluate the basis for the engagement leader’s determination that relevant ethical requirements relating to independence have been fulfilled , at the beginning and throughout the engagement, as well as review the documentation of identified threats to the relevant ethical requirements, including independence, and the appropriateness of safeguards applied;

• review the planning process including the engagement leader's assessment that the engagement team collectively has the competencies, resources, and time necessary to perform the assurance engagement; the engagement team's analysis of significant risks arising from the understanding of the entity and its environment, the nature of the assurance engagement and the risks of fraud and error; and the adequacy of the planned responses;

• throughout the engagement, discuss and review with the engagement leader the significant matters and significant judgments made;

• review selected documentation relating to significant judgments made and evaluate whether the documentation selected for review supports the work performed, the conclusions reached by the engagement team and whether those conclusions are appropriate;

• read the draft communications to Parliament, management, those charged with governance, and, where applicable, other parties this can assist in obtaining a better understanding of the entity and its environment but also to be satisfied that effective two-way communication has occurred, see guidance below;

• evaluate whether appropriate consultation has taken place on matters involving differences of opinion or other difficult or contentious matters, and whether the conclusions arising from those consultations are appropriately documented in the audit file and the parties consulted have agreed with the documentation of the basis on which the guidance was given and the conclusions reached; and

• evaluate the exercise of professional skepticism by the engagement team (when applicable) based on the documentation in the engagement file, for example:

  • while reviewing the quality of the documentation in the file used to support important judgements made and conclusions reached,
  • by identifying contradicting evidence documented in the file
  • by identifying documentation that suggests the engagement team was influenced by past experiences with the client (example, “this is a very competent client’’, such comments are seen as not being objective)
  • by identifying documentation that suggests insufficient investigation of exceptions/differences in order to support the conclusions reached,
  • documentation that raises questions about the credibility or quality of the audit evidence.

• determine whether the engagement leader’s involvement was sufficient and appropriate throughout the assurance engagement to form the basis for determining that the significant judgments made and the conclusions reached are appropriate.

• take the overall responsibility for the performance of the engagement quality review of the assurance engagement. In doing so, for larger group audits (or joint audits and contracted out audits), the group engagement quality reviewer may need to discuss significant matters and significant judgments with key members of the engagement team other than the group engagement team, example, those responsible for performing audit procedures on the financial information of a component or the engagement quality reviewer(s) of the component(s), the joint auditors or even the engagement quality reviewer of the contracted out audit.

• assurance report:

  • evaluate the conclusions reached in formulating the report and consider whether the proposed assurance engagement report is appropriate in the circumstances. For entities where we are communicating key audit matters in our financial audit report, the conclusions reached by the engagement team in formulating the audit report include determining key audit matters to be included in the financial audit report

• financial statements

  • review the financial statements and focus on the:
    • primary financial statements and significant notes thereto;
    • significant changes in accounting policies, presentation or disclosures; and
    • the appropriateness of accounting policies, treatment of significant transactions and unusual or complex areas.

• stand-back and determine if satisfied that the engagement quality reviewer’s responsibilities for the performance of the engagement quality review have been fulfilled, whether all review points on the file, including those of the quality reviewer, have been cleared satisfactorily and that the working papers have been corrected as appropriate.

The engagement quality reviewer's objective evaluation of the significant judgments made, includes, as a minimum, a discussion of significant matters OAG Audit 1141 and a review of selected documentation relating to the significant judgements made throughout the engagement. The engagement quality reviewer understands the important and sensitive aspects of the engagement and the reasons for the engagement strategy selected. The engagement quality reviewer makes appropriate challenging inquiries to satisfy him/herself that the judgments made are reasonable. He or she reviews the engagement strategy and any significant changes to it, makes further inquiries of the engagement leader and others as necessary, and refers to working papers or other relevant information to assess the engagement strategy, including the nature, timing, and extent of procedures to be performed in sensitive or high-risk areas. The engagement quality reviewer considers whether the working papers he or she selected for review provide support for the key judgments and the conclusions reached.

In reviewing the content of communications, the engagement quality reviewer considers whether, based on his or her knowledge, it appears that the audit team has appropriately communicated the significant matters relating to planning and those arising during the engagement that are judged to be important and relevant to Parliament, management, those charged with governance, and, where applicable, other parties. The engagement quality reviewer should exercise professional judgment in considering whether a review of additional documentation is warranted depending on the circumstances of the particular engagement, such as engagement risk and complexity, and the experience of the engagement team.

Group Audit Considerations

When an engagement quality reviewer has been appointed to a group audit, the engagement quality reviewer's review includes an evaluation of:

• The proposed overall group audit strategy and group audit plan, including significant judgments made by the group engagement team in scoping the group audit;

• Decisions about the direction and supervision of component auditors and the review of their work;

• The engagement leader's evaluation of work performed by component auditors and the conclusions drawn there from; and

• Significant judgments made at the component level when these are significant to the group financial statements.

Where significant matters and significant judgments made at the component level are significant to the group, the engagement quality reviewer might request the group engagement team to involve the relevant component team members when discussing and reviewing those areas. If the component firm has appointed an engagement quality reviewer to the component engagement, the group engagement quality reviewer may also request to participate in key meetings the component engagement quality reviewer has planned with the component engagement team to discuss significant matters and significant judgments relevant to the group engagement.

Engagement quality reviewer evaluation of the sufficiency and appropriateness of engagement leader’s involvement

The engagement quality reviewer exercises professional judgment in determining the procedures to perform when evaluating the engagement leader's basis for concluding their involvement has been sufficient and appropriate throughout the engagement. Some examples of procedures include, but may not be limited to:

• Discussions with the engagement leader to understand how the engagement leader has satisfied him/herself on the matters that require their involvement, in order to fulfill the requirements;

• Reviewing evidence of the involvement of the engagement leader in directing, supervising and reviewing the engagement, as documented in the engagement file. For example, minutes of meetings of the engagement team, agendas from discussions between the engagement leader and other members of the engagement team, sign-offs by the engagement leader and other members of the engagement team that provide evidence that the working papers were reviewed by the engagement leader;

• Attending key engagement team meetings (e.g., the team planning meeting, meetings where findings of the engagement team's work are discussed, meetings to discuss work performed by specialists and experts) to observe how the engagement leader directed and supervised the engagement team and reviewed their work;

• Inspecting evidence of the timeliness of the engagement leader's review of significant matters and documentation supporting significant judgments made by the engagement team;

• Evaluating the extent of the engagement leader's involvement in resolving queries raised by the engagement quality reviewer; and

• Discussions with other engagement team members regarding the engagement leader's involvement in directing and supervising the team and review of their work.

Evidence of the engagement quality reviewer's evaluation of the basis for the engagement leader's determination that their involvement has been sufficient and appropriate as well as the conclusion reached by the engagement quality reviewer is documented. Also refer to OAG Audit 1163 for guidance regarding documentation of the engagement quality review.

Unresolved concerns of the engagement quality reviewer

Where the engagement quality reviewer makes recommendations that the engagement leader does not accept and the matter is not resolved to the engagement quality reviewer's satisfaction, the engagement quality reviewer follows the Office’s procedures for dealing with differences of opinion. OAG Audit 3082 Resolution of differences of opinion outlines the Office's procedures for dealing with differences of opinion including those involving the engagement quality reviewer. After following that process, if the engagement quality reviewer's concerns are still not resolved to the engagement quality reviewer's satisfaction, the engagement quality reviewer notifies the principal of methodology, Audit Services as well as the Assistant Auditor Generals of the applicable audit practice that the engagement quality review cannot be completed and documents this notification in the engagement file.

Timing of an engagement quality review

Engagement quality reviewers are involved at appropriate points in time during the audit to evaluate significant judgments made by the engagement team in planning, performing and completing the engagement, including the basis for making those judgments, so that any concerns raised by the engagement quality reviewer can be resolved to their satisfaction on a timely basis, and always before the audit report is dated. In order for the engagement quality reviewer to be satisfied with significant matters and significant judgments made by the engagement team, the engagement quality reviewer considers each matter and, where the engagement quality reviewer has remaining questions or actions they believe need to be taken, they communicate them to the engagement leader or other engagement team members. Timely communication by the engagement quality reviewer facilitates timely action by the engagement leader and engagement team to address such matters to the satisfaction of the engagement quality reviewer.

The engagement quality reviewer's consideration of any independence threats or breaches is sufficiently early in the process to allow for any significant matters relating to independence to be addressed timely. For example, if an independence threat is identified during the acceptance and continuance process, the engagement leader would consult the engagement quality reviewer before commencing the engagement to check whether the engagement quality reviewer agrees with the engagement leader's conclusion that the planned safeguards reduce the threat to an appropriate level. Note however, that the engagement quality reviewer is not responsible for the acceptance or continuance decision.

Independence requires ongoing consideration by the engagement leader and team throughout the engagement. The engagement quality reviewer would typically understand the process the engagement team has implemented for identifying threats to independence and would review the engagement leader’s judgments relative to any significant threats or breaches identified.

The engagement quality reviewer discusses with the engagement leader, at key stages of the engagement (i.e., at least at planning and reporting, and more frequently if the engagement quality reviewer considers it necessary), whether any new matters have arisen since his or her initial consideration of independence. The purpose of these discussions is to be satisfied that the conclusions on independence, in the light of new threats identified, remain satisfactory.

The engagement quality reviewer should allow for sufficient time for the review and should be involved at appropriate stages of the engagement.

The engagement quality review should start sufficiently early in the assurance process to allow for timely discussion on significant matters and significant judgments. To meet this objective, the engagement quality reviewer should perform the review as the assurance engagement progresses, starting with the planning of the assurance engagement. In order for the quality reviewer to be satisfied with other significant matters, he or she considers each matter and, where he or she has questions, makes the engagement leader and team are aware of them so they can take appropriate action to address these questions and resolve them.

See OAG Audit 1163 Engagement quality reviewer: minimum documentation requirements

Completion of the engagement quality review

The engagement quality reviewer determines whether the engagement quality review is complete. Completion of the engagement quality review means the engagement quality reviewer's completion of the minimum review set out in the Quality Reviewer Checklist and any procedures that go beyond this based on the engagement quality reviewer’s judgment, including the appropriate resolution of any differences of opinion between the engagement team and the engagement quality reviewer. The engagement quality reviewer should notify the engagement leader about the engagement quality reviewer's satisfaction that there are no significant unresolved matters and that the engagement quality review is complete. Upon completion of the review, the quality reviewer should be satisfied that nothing has come to his or her attention that calls into question the overall quality of the engagement or the opinion and support for it. The assurance report cannot be dated earlier than the notification received from the engagement quality reviewer that the engagement quality review is complete.

Documentation of the engagement quality review may be completed after the date of the assurance engagement report, as part of the assembly of the final engagement file, provided it does not involve the drawing of new conclusions. During the final assembly period, a quality reviewer may document his or her review of, for example, information from relevant members of the engagement team that the quality reviewer obtained, discussed, and agreed with before the date of the assurance report.