Engagement Quality Review Morgan Thompson, CPA is a partner in a medium-sized CPA firm and takes an active part in the conduct of every audit she supervises. She follows the practice of reviewing all audit files of staff auditors on her team as soon as
it is convenient, rather than waiting until the end of the audit. When the audit is nearly finished, Thompson reviews the audit files again to make sure that she has not missed anything significant. Because she makes most of the major decisions on the audit, there is rarely anything that requires further investigation. When she completes the review, she prepares a draft of the financial statements, gets them approved by management, and has them assembled in her firm's office. No other partner reviews the audit documentation, because Thompson is responsible for signing the audit reports. REQUIRED: (1) Evaluate the practice of not having a concurring partner review of the audit documentation by another partner in the firm, (2) explain some of the procedures the reviewer should perform as part of the review process, and (3) what documentation should be included.
(1) By not having a review of the audit documentation by another partner in the firm, there is no check against any bias and unintentional error that may exist on the part of the auditor. An independent review is essential in this case. Such a review is required for public company audits.
(2) Some of the procedures the reviewer should perform as part of the review process include:
• Discussing with the audit team any significant matters related to the financial statements and internal controls, including the audit team's identification of material weaknesses and audit procedures to address significant risks
• Evaluating judgments about materiality and the disposition of corrected and uncorrected identified misstatements
• Reviewing the engagement team's evaluation of the firm's independence in relation to the engagement
• Reviewing the related audit documentation to determine its sufficiency
• Reading the financial statements, management's report on internal control, and auditor's report
• Confirming with the lead audit partner that there are no significant unresolved matters
• Determining if appropriate consultations have taken place on difficult or contentious matters
• Evaluating whether the auditor documentation supports the conclusions reached by the engagement team with respect to the matters reviewed
• Assessing whether appropriate matters have been communicated to audit committee members, management, and other appropriate parties
• Evaluating whether appropriate levels of supervision and reviews of individual audit tasks were completed adequately during the audit
(3) The audit documentation should include evidence on the performance of the engagement quality review. This documentation should include the following information:
• Who performed the engagement quality review
• Documents reviewed by the engagement quality reviewer
• Date the engagement quality reviewer provided concurring approval of issuance
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