PCAOB Passes Engagement Quality Review Standard, Solicits Comments

On July 28, the PCAOB passed an auditing standard, Engagement Quality Review (EQR), requiring an independent reviewer to perform EQRs and superseding the existing concurring partner review requirement.

“The EQR standard focuses the engagement quality reviewer’s attention on the areas that are most likely to contain a significant engagement deficiency and increases the likelihood of identifying and correcting those deficiencies before the audit report is issued,” says PCAOB Chairman Mark Olson. ”The new standard goes a long way in clarifying the process.”

“A strong second set of eyes on the audit is critical to audit quality,” says Olson says. “This approach focuses the engagement quality reviewer’s attention on the areas that are most likely to contain a significant engagement deficiency and increases the likelihood of identifying and correcting those deficiencies before the audit report is issued.”

Separately, the Board also is seeking comment on a Concept Release to consider the effects of a potential requirement for the engagement partner to sign the audit report. Any such requirement would be in addition to the existing requirement for the audit firm to sign its name on the audit report.

According to the Journal of Accountancy, the standard was first proposed in February 2008 and revised this March, when the board emphasized that a reviewer’s role differs significantly from that of an engagement partner.

Among other things, the standard requires that:

A reviewer be a partner in the firm that issues the engagement report, someone in an equivalent position in the firm or someone from outside the firm who is associated with a registered public accounting firm.

An audit engagement partner be prohibited from serving as the reviewer on that engagement for at least a two-year “cooling-off period.”

The reviewer’s documentation should not duplicate the engagement documentation. http://www.journalofaccountancy.com/Web/20091968.htm

If approved by the SEC, the standard will take effect for the EQR of audits and interim reviews for fiscal years that begin on or after Dec. 15, 2009, which the PCAOB staff said should allow for adequate time for registered firms to prepare for the adoption of the standard.