A new staff report issued by the Public Company Accounting Oversight Board (PCAOB) seeks to provide best practices for auditors amid observations of rising deficiency rates related to engagement quality reviews (EQRs).
The report, published Thursday, comes after the PCAOB found 42 percent of firms it inspected in 2022 had a quality control criticism related to EQRs. The number of U.S. global network firms with an EQR deficiency increased 33 percent from 2021 to 2022.
“Engagement quality reviews are an important investor safeguard during the audit process. Unfortunately, audit firms are increasingly falling short when performing this function,” said PCAOB Chair Erica Williams in a press release. “We urge audit firms and audit committees to read our EQR report so they can fully live up to their responsibility to protect investors against insufficiently supported audits.”
The report addresses when an EQR is required, what the review should entail, common deficiencies observed, and discussion points audit committees might want to consider when engaging with external auditors related to EQRs.
Best practices for audit firms offered by the report included:
- Putting programs in place to monitor workloads and areas of expertise to ensure partners assigned as EQR reviewers have sufficient time, experience, and knowledge to complete the reviews;
- Implementing milestone programs meant to promote the timeliness and quality of EQR reviews;
- Establishing programs to expand accountability for audit quality to EQR reviewers;
- Creating or revising tools and clarifying guidance for both EQR reviewers and engagement teams; and
- Forming a task force to evaluate potential root causes of engagement deficiencies.
The report noted a handful of recent enforcement actions announced by the PCAOB regarding alleged EQR deficiencies, including settlement orders published in June against Total Asia Associates and a pair of Friedman partners.