PES 4

1. This Professional and Ethical Standard (PES) deals with:

1. The appointment and eligibility of the engagement quality reviewer; and

2. The engagement quality reviewer’s responsibilities relating to the performance and documentation of an engagement quality review.

2. This PES applies to all engagements for which an engagement quality review is required to be performed in accordance with Professional and Ethical Standard 3¹. This PES is premised on the basis that the firm is subject to PES 3 or to national requirements that are at least as demanding. This PES is to be read in conjunction with relevant ethical requirements.

3. An engagement quality review performed in accordance with this PES is a specified response that is designed and implemented by the firm in accordance with PES 3². The performance of an engagement quality review is undertaken at the engagement level by the engagement quality reviewer on behalf of the firm.

4. The nature, timing and extent of the engagement quality reviewer’s procedures required by this PES vary depending on the nature and circumstances of the engagement or the entity. For example, the engagement quality reviewer’s procedures would likely be less extensive for engagements involving fewer significant judgements made by the engagement team.

5. PES 3 establishes the firm’s responsibilities for its system of quality management and requires the firm to design and implement responses to address the quality risks in a manner that is based on, and responsive to, the reasons for the assessments given to the quality risks.³ The specified responses in PES 3 include establishing policies or procedures addressing engagement quality reviews in accordance with this PES.

6. The firm is responsible for designing, implementing and operating the system of quality management. Under PES 3, the objective of the firm is to design, implement and operate a system of quality management for audits or reviews of financial statements, or other assurance or related services engagements performed by the firm, that provides the firm with reasonable assurance that:

1. The firm and its personnel fulfill their responsibilities in accordance with professional standards and applicable legal and regulatory requirements, and conduct engagements in accordance with such standards and requirements; and

2. Engagement reports issued by the firm or engagement partners are appropriate in the circumstances.⁴

7. As explained in PES 3⁵ the public interest is served by the consistent performance of quality engagements. Quality engagements are achieved through planning and performing engagements and reporting on them in accordance with professional standards and applicable legal and regulatory requirements. Achieving the objectives of those standards and complying with the requirements of applicable law or regulation involves exercising professional judgement and, when applicable to the type of engagement, exercising professional scepticism.

8. An engagement quality review is an objective evaluation of the significant judgements made by the engagement team and the conclusions reached thereon. The engagement quality reviewer’s evaluation of significant judgements is performed in the context of professional standards and applicable legal and regulatory requirements. However, an engagement quality review is not intended to be an evaluation of whether the entire engagement complies with professional standards and applicable legal and regulatory requirements, or with the firm’s policies or procedures.

9. The engagement quality reviewer is not a member of the engagement team. The performance of an engagement quality review does not change the responsibilities of the engagement partner for managing and achieving quality on the engagement, or for the direction and supervision of the members of the engagement team and the review of their work. The engagement quality reviewer is not required to obtain evidence to support the opinion or conclusion on the engagement, but the engagement team may obtain further evidence in responding to matters raised during the engagement quality review.

10. This PES contains the objective for the firm in following this PES, and requirements designed to enable the firm and the engagement quality reviewer to meet that stated objective. In addition, this PES contains related guidance in the form of application and other explanatory material and introductory material that provides context relevant to a proper understanding of this PES, and definitions. PES 3⁶ explains the terms objective, requirements, application and other explanatory material, introductory material, and definitions.

11. This PES is effective for:

1. Audits and reviews of financial statements for periods beginning on or after 15 December 2022 and 

2. Other assurance and related services engagements beginning on or after 15 December 2022.

12. The objective of the firm, through appointing an eligible engagement quality reviewer, is to perform an objective evaluation of the significant judgements made by the engagement team and the conclusions reached thereon.

13. For purposes of this PES, the following terms have the meanings attributed below:

1. Engagement quality review – An objective evaluation of the significant judgements made by the engagement team and the conclusions reached thereon, performed by the engagement quality reviewer and completed on or before the date of the engagement report.

2. Engagement quality reviewer – A partner, other individual in the firm, or an external individual, appointed by the firm to perform the engagement quality review.

3. Relevant ethical requirements – Principles of professional ethics and ethical requirements that are applicable to an assurance practitioner when undertaking the engagement quality review. Relevant ethical requirements ordinarily comprise the provisions of the Professional and Ethical Standard 1 International Code of Ethics for Assurance Practitioners (including International Independence Standards) (New Zealand) related to audits or reviews of financial statements, or other assurance or related services engagements, together with national requirements that are more restrictive. (Ref: Para. A12–A15)

14. The firm and the engagement quality reviewer shall have an understanding of this PES, including the application and other explanatory material, to understand the objective of this PES and to properly apply the requirements relevant to them.

15. The firm or the engagement quality reviewer, as applicable, shall comply with each requirement of this PES, unless the requirement is not relevant in the circumstances of the engagement.

16. The proper application of the requirements is expected to provide a sufficient basis for the achievement of the objective of this standard. However, if the firm or the engagement quality reviewer determines that the application of the relevant requirements does not provide a sufficient basis for the achievement of the objective of this standard, the firm or the engagement quality reviewer, as applicable, shall take further actions to achieve the objective.

17. The firm shall establish policies or procedures that require the assignment of responsibility for the appointment of engagement quality reviewers to an individual(s) with the competence, capabilities and appropriate authority within the firm to fulfill the responsibility. Those policies or procedures shall require such individual(s) to appoint the engagement quality reviewer. (Ref: Para. A1–A3)

18. The firm shall establish policies or procedures that set forth the criteria for eligibility to be appointed as an engagement quality reviewer. Those policies or procedures shall require that the engagement quality reviewer not be a member of the engagement team, and: (Ref: Para. A4)

1. Has the competence and capabilities, including sufficient time, and the appropriate authority to perform the engagement quality review; (Ref: Para. A5–A11)

2. Complies with relevant ethical requirements, including in relation to threats to objectivity and independence of the engagement quality reviewer; and (Ref: Para. A12–A15)

3. Complies with provisions of law and regulation, if any, that are relevant to the eligibility of the engagement quality reviewer. (Ref: Para. A16)

19. The firm’s policies or procedures established in accordance with paragraph 18(b) shall also address threats to objectivity created by an individual being appointed as an engagement quality reviewer after previously serving as the engagement partner. Such policies or procedures shall specify a cooling-off period of two years, or a longer period if required by relevant ethical requirements, before the engagement partner can assume the role of engagement quality reviewer. (Ref: Para. A17–A18)

20. The firm shall establish policies or procedures that set forth the criteria for eligibility of individuals who assist the engagement quality reviewer. Those policies or procedures shall require that such individuals not be members of the engagement team, and:

1. Have the competence and capabilities, including sufficient time, to perform the duties assigned to them; and (Ref: Para. A19)

2. Comply with relevant ethical requirements, including in relation to threats to their objectivity and independence and, if applicable, the provisions of law and regulation. (Ref: Para. A20–A21)

21. The firm shall establish policies or procedures that:

1. Require the engagement quality reviewer to take overall responsibility for the performance of the engagement quality review; and

2. Address the engagement quality reviewer’s responsibility for determining the nature, timing and extent of the direction and supervision of the individuals assisting in the review, and the review of their work. (Ref: Para. A22)

22. The firm shall establish policies or procedures that address circumstances in which the engagement quality reviewer’s eligibility to perform the engagement quality review is impaired and the appropriate actions to be taken by the firm, including the process for identifying and appointing a replacement in such circumstances. (Ref: Para. A23)

23. When the engagement quality reviewer becomes aware of circumstances that impair the engagement quality reviewer’s eligibility, the engagement quality reviewer shall notify the appropriate individual(s) in the firm, and: (Ref: Para. A24)

1. If the engagement quality review has not commenced, decline the appointment to perform the engagement quality review; or

2. If the engagement quality review has commenced, discontinue the performance of the engagement quality review.

24. The firm shall establish policies or procedures regarding the performance of the engagement quality review that address:

1. The engagement quality reviewer’s responsibilities to perform procedures in accordance with paragraphs 25–26 at appropriate points in time during the engagement to provide an appropriate basis for an objective evaluation of the significant judgements made by the engagement team and the conclusions reached thereon;

2. The responsibilities of the engagement partner in relation to the engagement quality review, including that the engagement partner is precluded from dating the engagement report until notification has been received from the engagement quality reviewer in accordance with paragraph 27 that the engagement quality review is complete; and (Ref: Para. A25–A26)

3. Circumstances when the nature and extent of engagement team discussions with the engagement quality reviewer about a significant judgement give rise to a threat to the objectivity of the engagement quality reviewer, and appropriate actions to take in these circumstances. (Ref: Para. A27)

25. In performing the engagement quality review, the engagement quality reviewer shall: (Ref: Para. A28–A33)

1. Read, and obtain an understanding of, information communicated by: (Ref: Para. A34)

   1. The engagement team regarding the nature and circumstances of the engagement and the entity; and

   2. The firm related to the firm’s monitoring and remediation process, in particular identified deficiencies that may relate to, or affect, the areas involving significant judgements made by the engagement team.

2. Discuss with the engagement partner and, if applicable, other members of the engagement team, significant matters and significant judgements made in planning, performing and reporting on the engagement. (Ref: Para. A35–A38)

3. Based on the information obtained in (a) and (b), review selected engagement documentation relating to the significant judgements made by the engagement team and evaluate: (Ref: Para. A39–A43)

   1. The basis for making those significant judgements, including, when applicable to the type of engagement, the exercise of professional scepticism by the engagement team;

   2. Whether the engagement documentation supports the conclusions reached; and

   3. Whether the conclusions reached are appropriate.

4. For audits of financial statements, evaluate the basis for the engagement partner’s determination that relevant ethical requirements relating to independence have been fulfilled. (Ref: Para. A44)

5. Evaluate whether appropriate consultation has taken place on difficult or contentious matters or matters involving differences of opinion and the conclusions arising from those consultations. (Ref: Para. A45)

6. For audits of financial statements, evaluate the basis for the engagement partner’s determination that the engagement partner’s involvement has been sufficient and appropriate throughout the audit engagement such that the engagement partner has the basis for determining that the significant judgements made and the conclusions reached are appropriate given the nature and circumstances of the engagement. (Ref: Para. A46)

7. Review:

   1. For audits of financial statements, the financial statements and the auditor’s report thereon, including, if applicable, the description of the key audit matters; (Ref: Para. A47)

   2. For review engagements, the financial statements or financial information and the engagement report thereon; or (Ref: Para. A47)

   3. For other assurance and related services engagements, the engagement report, and when applicable, the subject matter information. (Ref: Para. A48)

26. The engagement quality reviewer shall notify the engagement partner if the engagement quality reviewer has concerns that the significant judgements made by the engagement team, or the conclusions reached thereon, are not appropriate. If such concerns are not resolved to the engagement quality reviewer’s satisfaction, the engagement quality reviewer shall notify an appropriate individual(s) in the firm that the engagement quality review cannot be completed. (Ref: Para. A49)

27. The engagement quality reviewer shall determine whether the requirements in this PES with respect to the performance of the engagement quality review have been fulfilled, and whether the engagement quality review is complete. If so, the engagement quality reviewer shall notify the engagement partner that the engagement quality review is complete.

28. The firm shall establish policies or procedures that require the engagement quality reviewer to take responsibility for documentation of the engagement quality review. (Ref: Para. A50)

29. The firm shall establish policies or procedures that require documentation of the engagement quality review in accordance with paragraph 30, and that such documentation be included with the engagement documentation.

30. The engagement quality reviewer shall determine that the documentation of the engagement quality review is sufficient to enable an experienced practitioner, having no previous connection with the engagement, to understand the nature, timing and extent of the procedures performed by the engagement quality reviewer and, when applicable, individuals who assisted the reviewer, and the conclusions reached in performing the review. The engagement quality reviewer also shall determine that the documentation of the engagement quality review includes: (Ref: Para. A51–A53)

1. The names of the engagement quality reviewer and individuals who assisted with the engagement quality review;

2. An identification of the engagement documentation reviewed;

3. The basis for the engagement quality reviewer’s determination in accordance with paragraph 27;

4. The notifications required in accordance with paragraphs 26 and 27; and

5. The date of completion of the engagement quality review.

A1. Competence and capabilities that are relevant to an individual’s ability to fulfill responsibility for the appointment of the engagement quality reviewer may include appropriate knowledge about:

A2. The firm’s policies or procedures may specify that the individual responsible for the appointment of engagement quality reviewers not be a member of the engagement team for which an engagement quality review is to be performed. However, in certain circumstances (e.g., in the case of a smaller firm or a sole practitioner), it may not be practicable for an individual other than a member of the engagement team to appoint the engagement quality reviewer.

A3. [Amended by the NZAuASB]

NZA3.1. The firm may assign more than one individual to be responsible for appointing engagement quality reviewers. For example, the firm’s policies or procedures may specify a different process for appointing engagement quality reviewers for audits of FMC reporting entities considered to have a higher level of public accountability than for audits of non- FMC reporting entities considered to have a higher level of public accountability entities or other engagements, with different individuals responsible for each process.

A4. In some circumstances, for example, in the case of a smaller firm or a sole practitioner, there may not be a partner or other individual in the firm who is eligible to perform the engagement quality review. In these circumstances, the firm may contract with, or obtain the services of, individuals external to the firm to perform the engagement quality review. An individual external to the firm may be a partner or an employee of a network firm, a structure or an organisation within the firm’s network, or a service provider. When using such an individual, the provisions in PES 3 addressing network requirements or network services or service providers apply.

A5. PES 3 describes characteristics related to competence, including the integration and application of technical competence, professional skills, and professional ethics, values and attitudes.⁷ Matters that the firm may consider in determining that an individual has the necessary competence to perform an engagement quality review include, for example:

A6. The conditions, events, circumstances, actions or inactions considered by the firm in determining that an engagement quality review is an appropriate response to address one or more quality risk(s)⁸ may be an important consideration in the firm’s determination of the competence and capabilities required to perform the engagement quality review for that engagement. Other considerations that the firm may take into account in determining whether the engagement quality reviewer has the competence and capabilities, including sufficient time, needed to evaluate the significant judgements made by the engagement team and the conclusions reached thereon include, for example:

A7. In evaluating the competence and capabilities of an individual who may be appointed as an engagement quality reviewer, the findings arising from the firm’s monitoring activities (e.g., findings from the inspection of engagements for which the individual was an engagement team member or engagement quality reviewer) or the results of external inspections may also be relevant considerations.

A8. A lack of appropriate competence or capabilities affects the ability of the engagement quality reviewer to exercise appropriate professional judgement in performing the review. For example, an engagement quality reviewer who lacks relevant industry experience may not possess the ability or confidence necessary to evaluate and, where appropriate, challenge significant judgements made, and the exercise of professional scepticism, by the engagement team on a complex, industry-specific accounting or auditing matter.

A9. Actions at the firm level help to establish the authority of the engagement quality reviewer. For example, by creating a culture of respect for the role of the engagement quality reviewer, the engagement quality reviewer is less likely to experience pressure from the engagement partner or other personnel to inappropriately influence the outcome of the engagement quality review. In some cases, the engagement quality reviewer’s authority may be enhanced by the firm’s policies or procedures to address differences of opinion, which may include actions the engagement quality reviewer may take when a disagreement occurs between the engagement quality reviewer and the engagement team.

A10. The authority of the engagement quality reviewer may be diminished when:

A11. In the public sector, an auditor (e.g., an Auditor General, or other suitably qualified individual appointed on behalf of the Auditor General) may act in a role equivalent to that of the engagement partner with overall responsibility for public sector audits. In such circumstances, the selection of the engagement quality reviewer may include consideration of the need for independence and the ability of the engagement quality reviewer to provide an objective evaluation.

A12. The relevant ethical requirements that are applicable when undertaking an engagement quality review may vary, depending on the nature and circumstances of the engagement or the entity. Various provisions of relevant ethical requirements may apply only to individual assurance practitioners, such as an engagement quality reviewer, and not the firm itself.

A13. Relevant ethical requirements may include specific independence requirements that would apply to individual assurance practitioners, such as an engagement quality reviewer. Relevant ethical requirements may also include provisions that address threats to independence created by long association with an audit or assurance client. The application of any such provisions dealing with long association is distinct from, but may need to be taken into consideration in applying, the required cooling-off period in accordance with paragraph 19.

A14. Threats to the engagement quality reviewer’s objectivity may be created by a broad range of facts and circumstances. For example:

A15. Relevant ethical requirements may include requirements and guidance to identify, evaluate and address threats to objectivity. For example, PES 1 provides specific guidance, including examples of:

A16. Law or regulation may prescribe additional requirements regarding the eligibility of the engagement quality reviewer. For example, in some jurisdictions, the engagement quality reviewer may need to possess certain qualifications or be licensed to be able to perform the engagement quality review.

A17. In recurring engagements, the matters on which significant judgements are made often do not vary. Therefore, significant judgements made in prior periods may continue to affect judgements of the engagement team in subsequent periods. The ability of an engagement quality reviewer to perform an objective evaluation of significant judgements is therefore affected when the individual was previously involved with those judgements as the engagement partner. In such circumstances, it is important that appropriate safeguards are put in place to reduce threats to objectivity, in particular the self-review threat, to an acceptable level. Accordingly, this PES requires the firm to establish policies or procedures

that specify a cooling-off period during which the engagement partner is precluded from being appointed as the engagement quality reviewer.

A18. The firm’s policies or procedures also may address whether a cooling-off period is appropriate for an individual other than the engagement partner before becoming eligible to be appointed as the engagement quality reviewer on that engagement. In this regard, the firm may consider the nature of that individual’s role and previous involvement with the significant judgements made on the engagement. For example, the firm may determine that an engagement partner responsible for the performance of audit procedures on the financial information of a component in a group audit engagement may not be eligible to be appointed as the group engagement quality reviewer because of that audit partner’s involvement in the significant judgements affecting the group audit engagement.

A19. In certain circumstances, it may be appropriate for the engagement quality reviewer to be assisted by an individual or team of individuals with the relevant expertise. For example, highly specialised knowledge, skills or expertise may be useful for understanding certain transactions undertaken by the entity to help the engagement quality reviewer evaluate the significant judgements made by the engagement team related to those transactions.

A20. The guidance in paragraph A14 may be helpful to the firm when establishing policies or procedures that address threats to objectivity of individuals who assist the engagement quality reviewer.

A21. When the engagement quality reviewer is assisted by an individual external to the firm, the assistant’s responsibilities, including those related to compliance with relevant ethical requirements, may be set out in the contract or other agreement between the firm and the assistant.

A22. The firm’s policies or procedures may include responsibilities of the engagement quality reviewer to:

A23. Factors that may be relevant to the firm in considering whether the eligibility of the engagement quality reviewer to perform the engagement quality review is impaired include:

A24. In circumstances in which the engagement quality reviewer’s eligibility to perform the engagement quality review becomes impaired, the firm’s policies or procedures may set out a process by which alternative eligible individuals are identified. The firm’s policies or procedures may also address the responsibility of the individual appointed to replace the engagement quality reviewer to perform procedures sufficient to fulfill the requirements of this PES with respect to the performance of the engagement quality review. Such policies or procedures may further address the need for consultation in such circumstances.

A25. ISA (NZ) 220 (Revised)⁹ establishes the requirements for the engagement partner in audit engagements for which an engagement quality review is required, including:

A26. ISAE (NZ) 3000 (Revised)¹⁰ also establishes requirements for the engagement partner in relation to the engagement quality review.

A27. Frequent communication between the engagement team and engagement quality reviewer throughout the engagement may assist in facilitating an effective and timely engagement quality review. However, a threat to the objectivity of the engagement quality reviewer may be created depending on the timing and extent of the discussions with the engagement team about a significant judgement. The firm’s policies or procedures may set out the actions to be taken by the engagement quality reviewer or the engagement team to avoid situations in which the engagement quality reviewer is, or may be perceived to be, making decisions on behalf of the engagement team. For example, in these circumstances the firm may require consultation about such significant judgements with other relevant personnel in accordance with the firm’s consultation policies or procedures.

A28. The firm’s policies or procedures may specify the nature, timing and extent of the procedures performed by the engagement quality reviewer and also may emphasize the importance of the engagement quality reviewer exercising professional judgement in performing the review.

A29. The timing of the procedures performed by the engagement quality reviewer may depend on the nature and circumstances of the engagement or the entity, including the nature of the matters subject to the review. Timely review of the engagement documentation by the engagement quality reviewer throughout all stages of the engagement (e.g., planning, performing and reporting) allows matters to be promptly resolved to the engagement quality reviewer’s satisfaction, on or before the date of the engagement report. For example, the engagement quality reviewer may perform procedures in relation to the overall strategy and plan for the engagement at the completion of the planning phase. Timely performance of the engagement quality review also may reinforce the exercise of professional judgement and, when applicable to the type of engagement, professional scepticism, by the engagement team in planning and performing the engagement.

A30. [Amended by the NZAuASB]

NZA30.1  The nature and extent of the engagement quality reviewer’s procedures for a specific engagement may depend on, among other factors:

A31. The nature, timing and extent of the engagement quality reviewer’s procedures may need to change based on circumstances encountered in performing the engagement quality review.

A32. The performance of an engagement quality review for an audit of group financial statements may involve additional considerations for the individual appointed as the engagement quality reviewer for the group audit, depending on the size and complexity of the group. Paragraph 21(a) requires the firm’s policies or procedures to require the engagement quality reviewer to take overall responsibility for the performance of the engagement quality review. In doing so, for larger and more complex group audits, the group engagement quality reviewer may need to discuss significant matters and significant judgements with key members of the engagement team other than the group auditor (e.g., a component auditor). In these circumstances, the engagement quality reviewer may be assisted by individuals in accordance with paragraph 20. The guidance in paragraph A22 may be helpful when the engagement quality reviewer for the group audit is using assistants.

A33. In some cases, an engagement quality reviewer may be appointed for an audit of an entity or business unit that is part of a group, for example, when such an audit is required by law, regulation or other reasons. In these circumstances, communication between the engagement quality reviewer for the group audit and the engagement quality reviewer for the audit of that entity or business unit may help the group engagement quality reviewer in fulfilling the responsibilities in accordance with paragraph 21(a). For example, this may be the case when the entity or business unit has been identified as a component for purposes of the group audit and significant judgements related to the group audit have been made at the component level.

A34. Obtaining an understanding of information communicated by the engagement team and the firm in accordance with paragraph 25(a) may assist the engagement quality reviewer in understanding the significant judgements that may be expected for the engagement. Such an understanding may also provide the engagement quality reviewer with a basis for discussions with the engagement team about the significant matters and significant judgements made in planning, performing and reporting on the engagement. For example, a deficiency identified by the firm may relate to significant judgements made by other engagement teams for certain accounting estimates for a particular industry. When this is the case, such information may be relevant to the significant judgements made on the engagement with respect to those accounting estimates, and therefore may provide the engagement quality reviewer with a basis for discussions with the engagement team in accordance with paragraph 25(b).

A35. For audits of financial statements, ISA 220 (NZ) (Revised)¹² requires the engagement partner to review audit documentation relating to significant matters¹³ and significant judgements, including those relating to difficult or contentious matters identified during the engagement, and the conclusions reached.

A36. For audits of financial statements, ISA 220 (NZ) (Revised)¹⁴ provides examples of significant judgements that may be identified by the engagement partner related to the overall audit strategy and audit plan for undertaking the engagement, the execution of the engagement and the overall conclusions reached by the engagement team.

A37. For engagements other than audits of financial statements, the significant judgements made by the engagement team may depend on the nature and circumstances of the engagement or the entity. For example, in an assurance engagement performed in accordance with ISAE (NZ) 3000 (Revised), the engagement team’s determination of whether the criteria to be applied in the preparation of the subject matter information are suitable for the engagement may involve or require significant judgement.

A38. In performing the engagement quality review, the engagement quality reviewer may become aware of other areas where significant judgements would have been expected to be made by the engagement team for which further information may be needed about the engagement team’s procedures performed or the basis for conclusions reached. In those circumstances, discussions with the engagement quality reviewer may result in the engagement team concluding that additional procedures need to be performed.

A39. The information obtained in accordance with paragraphs 25(a) and 25(b), and the review of selected engagement documentation, assists the engagement quality reviewer in evaluating the engagement team’s basis for making the significant judgements. Other considerations that may be relevant to the engagement quality reviewer’s evaluation include, for example:

A40. The firm’s policies or procedures may specify engagement documentation to be reviewed by the engagement quality reviewer. In addition, such policies or procedures may indicate that the engagement quality reviewer exercises professional judgement in selecting additional engagement documentation to be reviewed relating to significant judgements made by the engagement team.

A41. Discussions about significant judgements with the engagement partner, and if applicable, other members of the engagement team, together with the engagement team’s documentation, may assist the engagement quality reviewer in evaluating the exercise of professional scepticism, when applicable to the engagement, by the engagement team in relation to those significant judgements.

A42. For audits of financial statements, ISA (NZ) 220 (Revised)¹⁵ provides examples of the impediments to the exercise of professional scepticism at the engagement level, unconscious auditor biases that may impede the exercise of professional scepticism, and possible actions that the engagement team may take to mitigate impediments to the exercise of professional scepticism at the engagement level.

A43. For audits of financial statements, the requirements and relevant application material in ISA (NZ) 315 (Revised 2019),¹⁶ ISA (NZ) 540 (Revised)¹⁷ and other ISAs (NZ) also provide examples of areas in an audit where the auditor exercises professional scepticism, or examples of where appropriate documentation may help provide evidence about how the auditor exercised professional scepticism. Such guidance may also assist the engagement quality reviewer in evaluating the exercise of professional scepticism by the engagement team.

A44. ISA (NZ) 220 (Revised)¹⁸ requires the engagement partner, prior to dating the auditor’s report, to take responsibility for determining whether relevant ethical requirements, including those related to independence, have been fulfilled.

A45. PES 3¹⁹ addresses consultation on difficult or contentious matters and differences of opinion within the engagement team, or between the engagement team and the engagement quality reviewer or individuals performing activities within the firm’s system of quality management.

A46. ISA (NZ) 220 (Revised)²⁰ requires the engagement partner to determine, prior to dating the auditor’s report, that the engagement partner’s involvement has been sufficient and appropriate throughout the audit engagement such that the engagement partner has the basis for determining that the significant judgements made and the conclusions reached are appropriate given the nature and circumstances of the engagement. ISA (NZ) 220 (Revised)²¹ also indicates that the documentation of the involvement of the engagement partner may be accomplished in different ways. Discussions with the engagement team, and review of such engagement documentation, may assist the engagement quality reviewer’s evaluation of the basis for the engagement partner’s determination that the engagement partner’s involvement has been sufficient and appropriate.

A47. For audits of financial statements, the engagement quality reviewer’s review of the financial statements and auditor’s report thereon may include consideration of whether the presentation and disclosure of matters relating to the significant judgements made by the engagement team are consistent with the engagement quality reviewer’s understanding of those matters based on the review of selected engagement documentation, and discussions with the engagement team. In reviewing the financial statements, the engagement quality reviewer may also become aware of other areas where significant judgements would have been expected to be made by the engagement team for which further information may be needed about the engagement team’s procedures or conclusions. The guidance in this paragraph also applies to review engagements, and the related engagement report.

A48. For other assurance and related services engagements, the engagement quality reviewer’s review of the engagement report and, when applicable, the subject matter information may include considerations similar to those described in paragraph A47 (e.g., whether the presentation or description of matters relating to the significant judgements made by the engagement team are consistent with the engagement quality reviewer’s understanding based on the procedures performed in connection with the review).

A49. The firm’s policies or procedures may specify the individual(s) in the firm to be notified if the engagement quality reviewer has unresolved concerns that the significant judgements made by the engagement team, or the conclusions reached thereon, are not appropriate. Such individual(s) may include the individual assigned the responsibility for the appointment of engagement quality reviewers. With respect to such unresolved concerns, the firm’s policies or procedures may also require consultation within or outside the firm (e.g., a professional or regulatory body).

A50. Paragraphs 57 to 60 of PES 3 address the firm’s documentation of its system of quality management. An engagement quality review performed in accordance with this PES is therefore subject to the documentation requirements in PES 3.

A51. The form, content and extent of the documentation of the engagement quality review may depend on factors such as:

A52. The performance and notification of the completion of the engagement quality review may be documented in a number of ways. For example, the engagement quality reviewer may document the review of engagement documentation electronically in the IT application for the performance of the engagement. Alternatively, the engagement quality reviewer may document the review through means of a memorandum. The engagement quality reviewer’s procedures may also be documented in other ways, for example, in the minutes of the engagement team’s discussions where the engagement quality reviewer was present.

A53. Paragraph 24(b) requires that the firm’s policies or procedures preclude the engagement partner from dating the engagement report until the completion of the engagement quality review, which includes resolving matters raised by the engagement quality reviewer. Provided that all requirements with respect to the performance of the engagement quality review have been fulfilled, the documentation of the review may be finalised after the date of the engagement report, but before the assembly of the final engagement file. However, firm policies or procedures may specify that the documentation of the engagement quality review needs to be finalised on or before the date of the engagement report.