Quality Control, Peer Review and Firm-Level Standards
Domain 8 tests firm-level quality control under SQC 1 and engagement-level quality control under SA 220.
Firm and engagement controls
- SQC 1 covers leadership, ethical requirements, acceptance and continuance, human resources, engagement performance and monitoring.
- SA 220 requires the engagement partner to be satisfied that the firm’s quality control policies are applied and to take responsibility for the engagement.
- Engagement quality control review (EQCR) is required for listed audits and other high-risk engagements; the reviewer must be objective and not part of the engagement team.
- Peer review is a periodic review by an independent reviewer under ICAI’s Peer Review Board, not an assurance opinion on the financial statements.
Worked example
A firm audits a listed company with a complex revenue model. The engagement partner appoints an EQCR reviewer from another office who has no involvement in the engagement. The reviewer challenges revenue cut-off testing and the level of sampling. The partner addresses the points and documents the review before the report is signed. The reasoning is that EQCR is a safeguard at the most judgmental point, but it does not transfer responsibility away from the engagement partner.
Traps
Treating EQCR as optional for all engagements; using a reviewer who consulted on the engagement; assuming peer review guarantees audit quality; and failing to document consultations on difficult accounting issues.