Quality Audit Review (QAR) in Terms of International Auditing Standards

1.    Introduction

A Quality Audit Review (QAR) is a formal assessment of an audit engagement’s quality to ensure compliance with International Auditing Standards (ISA) and International Standard on Quality Management (ISQM) requirements.

It is conducted to assess whether the audit firm and its professionals follow appropriate audit procedures and adhere to ethical and professional standards.

2.    Key Standards Governing Quality Audit Review (QAR)

3.1        International Standard on Quality Management (ISQM) 1 & 2

The International Standard on Quality Management (ISQM) issued by the International Auditing and Assurance Standards Board (IAASB) establishes requirements for audit firms to ensure quality in their audits.

  • ISQM 1 (Quality Management for Firms That Perform Audits and Reviews)
    • Requires firms to design, implement, and maintain a system of quality management.
    • Focuses on continuous monitoring and evaluation of audit quality.
  • ISQM 2 (Engagement Quality Reviews - EQR)
    • Introduces requirements for an independent review of significant audit engagements.
    • Requires a senior auditor (Engagement Quality Reviewer) to review the audit process before issuing an audit opinion.

3.2        International Standard on Auditing (ISA) 220 – Quality Control for an Audit of Financial Statements

  • ISA 220 requires engagement teams to implement procedures ensuring the quality of an audit engagement. It mandates:
    • Supervision and review of audit work.
    • Consultation on complex or contentious issues.
    • Final quality control review before issuing the auditor’s report.

3.3        International Forum of Independent Audit Regulators (IFIAR)

  • IFIAR also promotes audit quality inspections and reviews as part of global audit quality improvement efforts.

3.    Purpose of a Quality Audit Review (QAR)

A QAR is performed to:

  • Ensure compliance with ISA, ISQM, and other regulatory standards.
  • Evaluate audit documentation to confirm that sufficient and appropriate evidence supports the auditor’s opinion.
  • Identify deficiencies in audit engagements and recommend improvements.
  • Monitor engagement partners and audit teams for adherence to ethical standards (e.g., independence, objectivity, and integrity).
  • Provide assurance to regulators and stakeholders about the reliability of the audit process.

4.    Types of Quality Audit Reviews (QAR)

5.1        External Quality Review (EQR)

  • Conducted by independent regulators or professional bodies (e.g., Public Company Accounting Oversight Board (PCAOB), IFIAR, or local audit oversight bodies).
  • Focuses on audit firm compliance with standards and regulations.

5.2        Internal Quality Review

  • Conducted within an audit firm as part of ISQM 1 compliance.
  • Ensures auditors follow internal policies, procedures, and ISA requirements.

5.3        Peer Review

  • A review by another audit firm or professional body.
  • Common in jurisdictions where audit firms must undergo periodic independent peer assessments.

5.4        Engagement Quality Review (EQR)

  • Required by ISQM 2, specifically for high-risk audits such as:
    • Public Interest Entities (PIEs)
    • Complex financial institutions
    • Engagements with high litigation risk
    • Performed by an experienced auditor (not part of the audit engagement) before the audit opinion is issued.

5.    QAR Process

  • Planning the Review
  • Identify audit engagements for review.
  • Select quality reviewers with appropriate expertise.
  • Review of Audit Documentation
  • Assess whether audit evidence was obtained as per ISA.
  • Check compliance with ethical and independence requirements.
  • Evaluate the sufficiency and appropriateness of audit work papers.
  • Evaluation of Key Audit Areas
  • Assess risk assessment procedures.
  • Review significant judgments and estimates made by auditors.
  • Examine audit conclusions and whether they are appropriately documented.
  • Reporting & Remediation
  • Identify deficiencies and provide recommendations for improvement.
  • Follow-up on corrective actions taken by the audit firm.

6.    Impact of QAR on Audit Firms

  • Regulatory Compliance: Ensures firms comply with ISQM 1, ISQM 2, ISA 220, and other relevant standards.
  • Reputation & Credibility: Enhances trust in audit firms by stakeholders, investors, and regulators.
  • Continuous Improvement: Helps firms identify weaknesses and improve audit quality.
  • Avoidance of Penalties: Reduces the risk of sanctions, fines, or loss of accreditation by regulators.

7.    Conclusion

A Quality Audit Review (QAR) is a crucial audit quality control mechanism ensuring compliance with ISA, ISQM, and regulatory requirements.

It helps maintain audit integrity, credibility, and stakeholder confidence by ensuring that audit engagements meet professional and ethical standards.