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In-Depth Study Complete
HKSQM 2 - Engagement Quality Reviews (Condensed)
๐ PDF โ HKICPA Handbook Vol III
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๐ฌVideo walkthrough coming soon.
| Section | Key Concept | Brief Description |
|---|---|---|
| Introduction | Scope & Scalability | Applies to all engagements requiring EQR under HKSQM 1; procedures vary by engagement nature and entity circumstances. |
| Objective | Objective Evaluation | Firm appoints eligible reviewer to objectively evaluate significant judgments and conclusions. |
| Definitions | Key Terms | Defines engagement quality review, reviewer, and relevant ethical requirements. |
| Appointment & Eligibility | Reviewer Criteria | Reviewer must not be team member; must have competence, authority, comply with ethics, and observe cooling-off period. |
| Performance of Review | Procedures & Completion | Reviewer performs specified procedures, addresses unresolved concerns, and notifies partner upon completion. |
| Documentation | Record Keeping | Documentation must enable experienced practitioner to understand procedures and conclusions; includes names, reviewed docs, basis, notifications, date. |
| Conformity & Guidance | International Standards & Application | HKSQM 2 conforms to ISQM 2; application guidance covers group audits, professional skepticism, independence, consultation, and partner involvement. |
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Introduction to HKSQM 2
Scope of HKSQM 2
HKSQM 2 deals with two primary areas:
- Appointment and eligibility of the engagement quality reviewer
- Responsibilities of the engagement quality reviewer relating to performance and documentation of an engagement quality review
Key Scope Provisions:
- Applies to all engagements requiring an engagement quality review under HKSQM 1
- Premised on the firm being subject to HKSQM 1 or local requirements at least as demanding
- Must be read in conjunction with relevant ethical requirements
- The engagement quality review is a specified response designed and implemented by the firm under HKSQM 1
- Performance is undertaken at the engagement level by the engagement quality reviewer on behalf of the firm
Scalability
The nature, timing, and extent of procedures vary depending on:
- Nature and circumstances of the engagement
- Nature and circumstances of the entity
- For example: procedures would likely be less extensive for engagements involving fewer significant judgments
Effective Date
| Engagement Type | Effective Date |
|---|---|
| Audits and reviews of financial statements | Periods beginning on or after 15 December 2022 |
| Other assurance and related services engagements | Engagements beginning on or after 15 December 2022 |
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Objective and Definitions
Objective (Paragraph 12)
Objective: The objective of the firm, through appointing an eligible engagement quality reviewer, is to perform an objective evaluation of the significant judgments made by the engagement team and the conclusions reached thereon.
Definitions (Paragraph 13)
| Term | Definition |
|---|---|
| Engagement quality review | An objective evaluation of the significant judgments 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 |
| Engagement quality reviewer | A partner, other individual in the firm, or an external individual, appointed by the firm to perform the engagement quality review |
| Relevant ethical requirements | Principles of professional ethics and ethical requirements applicable to a professional accountant when undertaking the engagement quality review. Ordinarily comprises provisions of the HKICPA Code of Ethics for Professional Accountants (the Code) related to audits or reviews of financial statements, or other assurance or related services engagements, together with local requirements that are more restrictive |
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Appointment and Eligibility of Engagement Quality Reviewers
Assignment of Responsibility (Paragraph 17)
The firm shall establish policies or procedures that:
- Require assignment of responsibility for appointment of engagement quality reviewers to an individual(s) with:
- Competence
- Capabilities
- Appropriate authority within the firm to fulfill the responsibility
- Require such individual(s) to appoint the engagement quality reviewer
Eligibility Criteria (Paragraph 18)
Eligibility Requirements:
- Shall not be a member of the engagement team
- Shall have competence and capabilities, including sufficient time, and appropriate authority
- Shall comply with relevant ethical requirements, including threats to objectivity and independence
- Shall comply with provisions of law and regulation relevant to eligibility
Cooling-Off Period (Paragraph 19)
The firm's policies or procedures shall address threats to objectivity created by an individual being appointed as engagement quality reviewer after previously serving as the engagement partner. Such policies or procedures shall specify a cooling-off period of:
- Two years, or
- Longer period if required by relevant ethical requirements
Individuals Assisting the Reviewer (Paragraphs 20-21)
Eligibility Criteria for Assistants:
- Shall not be members of the engagement team
- Shall have competence and capabilities, including sufficient time
- Shall comply with relevant ethical requirements
The engagement quality reviewer takes overall responsibility for the performance of the engagement quality review.
Impairment of Eligibility (Paragraphs 22-23)
When eligibility is impaired:
- Firm: Establish policies addressing circumstances of impairment, appropriate actions, and process for identifying and appointing a replacement
- Reviewer: Notify appropriate individual(s); if review has not commenced: decline; if review has commenced: discontinue
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Performance of the Engagement Quality Review
Firm's Policies or Procedures (Paragraph 24)
The firm shall establish policies or procedures regarding:
- Engagement quality reviewer's responsibilities to perform procedures at appropriate points in time during the engagement
- Engagement partner's responsibilities, including: engagement partner is precluded from dating the engagement report until notification from the engagement quality reviewer that the review is complete
- Circumstances when nature and extent of engagement team discussions with the engagement quality reviewer about a significant judgment give rise to a threat to objectivity, and appropriate actions to take
Procedures Performed by the Engagement Quality Reviewer (Paragraph 25)
Required Procedures:
- Read and obtain understanding of information communicated by the engagement team and the firm
- Discuss significant matters and significant judgments with the engagement partner and team
- Review selected engagement documentation relating to significant judgments and evaluate basis, support, and appropriateness of conclusions
- For audits: evaluate basis for engagement partner's determination that independence requirements have been fulfilled
- Evaluate whether appropriate consultation has taken place on difficult or contentious matters
- For audits: evaluate basis for engagement partner's determination that involvement has been sufficient and appropriate
- Review financial statements and engagement reports
Unresolved Concerns (Paragraph 26)
The engagement quality reviewer shall:
- Notify the engagement partner if the reviewer has concerns that significant judgments or conclusions are not appropriate
- If such concerns are not resolved to the reviewer's satisfaction, notify an appropriate individual(s) in the firm that the engagement quality review cannot be completed
Completion of the Engagement Quality Review (Paragraph 27)
The engagement quality reviewer shall:
- Determine whether the requirements in HKSQM 2 have been fulfilled
- Determine whether the engagement quality review is complete
- If so, notify the engagement partner that the engagement quality review is complete
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Documentation
Firm's Policies or Procedures (Paragraph 28)
The firm shall establish policies or procedures that:
- Require the engagement quality reviewer to take responsibility for documentation of the engagement quality review
- Require documentation of the engagement quality review in accordance with paragraph 30
- Require that such documentation be included with the engagement documentation
Content of Documentation (Paragraph 30)
The engagement quality reviewer shall determine that documentation is sufficient to enable an experienced practitioner, having no previous connection with the engagement, to understand:
- The nature, timing, and extent of procedures performed
- The conclusions reached in performing the review
Minimum Documentation Requirements:
- The names of the engagement quality reviewer and individuals who assisted
- An identification of the engagement documentation reviewed
- The basis for the engagement quality reviewer's determination in accordance with paragraph 27
- The notifications required in accordance with paragraphs 26 and 27
- The date of completion of the engagement quality review
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Key Application Guidance Summary
Group Audit Considerations (A32-A33)
- Additional considerations for group audit engagement quality reviewer
- May need to discuss significant matters and significant judgments with key members of the engagement team other than the group engagement team
- May be assisted by individuals in accordance with paragraph 20
- Communication between group engagement quality reviewer and component engagement quality reviewer may be helpful
Significant Matters and Significant Judgments (A35-A43)
For Audits of Financial Statements:
- HKSA 220 (Revised) requires engagement partner to review audit documentation relating to significant matters and significant judgments
- Examples of significant judgments related to overall audit strategy, execution, and overall conclusions
Engagement Quality Reviewer's Evaluation:
- Remaining alert to changes in nature and circumstances
- Applying an unbiased view
- Following up on inconsistencies
Professional Skepticism (A41-A43)
- Discussions about significant judgments may assist in evaluating exercise of professional skepticism
- HKSA 220 (Revised) provides examples of impediments to professional skepticism
Independence (A44)
- HKSA 220 (Revised) requires engagement partner, prior to dating the auditor's report, to take responsibility for determining whether relevant ethical requirements, including independence, have been fulfilled
Consultation (A45)
- HKSQM 1 addresses consultation on difficult or contentious matters and differences of opinion
Engagement Partner Involvement (A46)
- HKSA 220 (Revised) requires engagement partner to determine that involvement has been sufficient and appropriate
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Key Takeaways Summary Table
Key Takeaways Summary Table
| Area | Key Requirement |
|---|---|
| Objective | Objective evaluation of significant judgments and conclusions |
| Appointment | Assigned to individual(s) with competence, capabilities, and authority |
| Eligibility | Not a member of engagement team; competence, capabilities, time, authority; ethical requirements; law/regulation |
| Cooling-off Period | 2 years (or longer if required) after serving as engagement partner |
| Assistants | Not engagement team members; competence, capabilities, time; ethical requirements |
| Overall Responsibility | Engagement quality reviewer takes overall responsibility |
| Impairment | Notify firm; decline or discontinue |
| Procedures | Read information; discuss significant matters; review documentation; evaluate independence (audits); evaluate consultation; evaluate partner involvement; review reports |
| Unresolved Concerns | Notify partner; if unresolved, notify appropriate individual(s) |
| Completion | Determine requirements fulfilled; notify partner |
| Documentation | Sufficient for experienced practitioner; names, documentation identified, basis, notifications, date |
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