Improving the Effectiveness of Engagement Quality Review

Abstract

The importance of engagement quality review on audit engagements has increased in recent years. The SEC has cited engagement quality reviewers for failing to adequately review audit work, and the Sarbanes-Oxley Act of 2002 requires that auditing standards be issued for engagement quality review. The purpose of this research is to examine factors that can improve engagement quality reviews across varying levels of engagement partner performance. One hundred twenty-three experienced engagement quality reviewers participated in an experiment, which varied the purpose of the review, the introduction of a detailed practice aid, and engagement partner performance. Our results show that: (1) the purpose of the review affects the engagement quality reviewers' recall of the engagement partners' performance and judgments, (2) the purpose of the review also affects the overall engagement partners' performance ratings as well as ratings within individual performance categories, (3) the introduction of a detailed practice aid prior to reviewing the engagement partner's performance improves overall recall of performance, and (4) engagement quality reviewers recall more audit risk related information when the engagement partners' performance is low. These results identify possible process improvements that may produce more effective engagement quality reviews and address questions about review objective and review processes currently being considered by the PCAOB.

Keywords: Engagement quality review, concurring/second partner review, auditor performance appraisals, information acquisition and recall

JEL Classification: M49, G38, G34