ISQM 2

Engagement Quality Reviews

1Objective and scope

ISQM 2 deals with the appointment and eligibility of the engagement quality reviewer and the performance and documentation of an engagement quality review. It applies to every engagement for which an engagement quality review is required by the firm's SoQM under ISQM 1, which must include audits of listed entities' financial statements, engagements where law or regulation requires a review, and any other engagement the firm concludes warrants one in response to its quality risks (for example a public interest entity, a first-year audit with significant risk, or a client with a modified opinion history). Effective for reviews of engagements for periods beginning on or after 15 December 2022.

The objective is for the firm, through the appointment of an eligible reviewer and the reviewer's performance and documentation of the review, to provide an objective evaluation of the significant judgements made by the engagement team and the conclusions reached, as part of the firm's system of quality management. The review does not replace the engagement partner's responsibility for the engagement and its report, and it is not a re-performance of the audit.

2Key definitions

3Requirements

Appointment and eligibility

• The firm assigns responsibility for appointing reviewers to an individual with the competence and authority to do so, and sets criteria for eligibility.
• The reviewer must have the competence and capabilities (including sufficient time and appropriate authority) to perform the review, and must comply with relevant ethical requirements, including objectivity and independence, and with law and regulation.
• A reviewer must not be a member of the engagement team, must not have been the engagement partner on the engagement within the cooling-off period, and must not make decisions for the engagement team or perform the team's work.
• The reviewer may use assistants, who must also be eligible and whose work the reviewer directs, supervises and reviews. The reviewer remains responsible for the review.
• Eligibility must be re-assessed if circumstances change (for example, the reviewer becomes involved in the engagement or an independence threat arises), and the reviewer must notify the firm and withdraw if no longer eligible.

Performing the review

The review is performed at appropriate points during the engagement, not only at the end, so that significant judgements can be evaluated in time for the engagement team to act on the reviewer's concerns. The reviewer reads the financial statements or other subject matter information and the proposed report, discusses significant matters and judgements with the engagement partner and, where relevant, other team members, and reviews selected engagement documentation relating to those judgements. The reviewer must evaluate:

• The basis for the engagement partner's determination that the relevant ethical requirements, including independence, have been fulfilled.
• Whether the engagement team has undertaken appropriate consultation on difficult or contentious matters or differences of opinion, and the conclusions arising.
• For audits of financial statements: the significant risks and the responses to them, the significant judgements in planning and performing the audit, the evaluation of misstatements, the going concern assessment, and the appropriateness of the auditor's report, including key audit matters and any modification.
• Whether the significant judgements, and the conclusions reached, are appropriate, exercising professional scepticism and considering whether the engagement team's judgements show appropriate scepticism.
• Whether the documentation reviewed supports the conclusions reached, and whether the reviewer's concerns have been resolved to the reviewer's satisfaction.

The review must be completed on or before the date of the engagement report. The reviewer notifies the engagement partner when the review is complete; if unresolved concerns remain, the reviewer notifies the partner and the firm's designated individual, and the report is not dated until they are resolved. If the reviewer's concern is not addressed, the firm's policies (under ISQM 1) on differences of opinion govern the outcome.

4Documentation and reporting

The reviewer's documentation must be included in the engagement file (or otherwise retained with it) and must be sufficient for an experienced practitioner with no previous connection to the engagement to understand the nature, timing and extent of the procedures performed, the names of the reviewer and any assistants, the engagement documentation reviewed, the basis for the reviewer's conclusion, and the date the review was completed. The documentation is assembled and retained under the firm's ISQM 1 policies and ISA 230 timelines. The review itself is not reported to the client or in the auditor's report; its existence is visible only in the firm's file and, for listed entities, in the fact that a review was required.

5Examinable focus