What does engagement quality review mean on the CPA exam?
Last reviewed
Engagement quality review. An objective evaluation of the significant judgments and the conclusions reached, performed by someone not on the engagement team before the report is released.
Defined against AS 1220.
Worked example
This year the firm's portfolio includes a listed company that files with the SEC and a privately held distributor. For the listed company, the firm proposes as engagement quality reviewer the partner who led that same audit last year and has since moved to another client. Firm policy does not designate the distributor's audit for review.
Can the proposed partner serve, and which of the two audits must have an engagement quality review?
- The listed company's audit is under PCAOB standards, which require an engagement quality review, with concurring approval before the report is released, on every audit.
- Anyone who led that client's audit in the last two years is ineligible to review it. Last year's partner is barred until that cooling-off period has run.
- The distributor's audit falls under the AICPA's standards, where a review is required only when firm policy or the quality management system calls for one. Policy here does not.
Answer: The proposed partner cannot serve; the firm needs a reviewer with no recent role on that engagement. Only the listed company's audit requires an engagement quality review.
The trap: Assuming any experienced partner who is off this year's team is objective enough. The cooling-off rule exists because a reviewer who made last year's calls would be grading their own work.
Based on AS 1220.01; AS 1220.08.
Which CPA exam sections use engagement quality review?
Engagement quality review appears in the AUD section of the CPA exam.
Other names for engagement quality review
engagement quality reviewer
Related terms
- retrospective review: Comparing last period's accounting estimates against what actually happened, to see whether management's judgments lean consistently in one direction.
- complementary user entity controls: Controls a service organization assumes its customers are running.