An engagement quality review is an objective evaluation of the significant judgments made by an engagement team, carried out by someone outside the team and completed on or before the date of the report. ISQM (UK) 1 decides when one is required: audits of listed entities and public interest entities, engagements where law or regulation demands one, certain FCA client asset and investment reporting work, and any engagement where the firm chooses one as a response to a quality risk. ISQM (UK) 2 then sets who can be the reviewer and what the reviewer must do.

When is an engagement quality review required?

Paragraph 34(f) of ISQM (UK) 1 requires the firm’s policies to call for an engagement quality review for:

  1. audits of financial statements of listed entities;
  2. audits or other engagements where law or regulation requires a review;
  3. audits or other engagements where the firm decides a review is an appropriate response to one or more quality risks;
  4. audits of financial statements of public interest entities;
  5. public reporting engagements under the Standards for Investment Reporting; and
  6. engagements where the FRC’s standard on providing assurance on client assets to the FCA requires one.

Public interest entity has the meaning in section 494A of the Companies Act 2006: in summary, issuers whose transferable securities are admitted to trading on a UK regulated market, UK CRR credit institutions and insurance undertakings (UK definitions in paragraph 13 of ISQM (UK) 2).

The third limb is where most firms without listed clients need to think. Paragraph A134 of ISQM (UK) 1 gives examples of conditions where a review may be the right response: audits with high estimation uncertainty or going concern doubts, engagements with recurring inspection findings or a material restatement, a new client that had a disagreement with its previous auditor, entities in emerging industries, entities holding significant assets in a fiduciary capacity, and entities with a high public profile. Paragraph A136 accepts that a firm may conclude no engagement needs one. That conclusion should come out of the firm’s risk assessment under ISQM (UK) 1, not habit.

What is the review meant to do, and what is it not?

Paragraph 8 of ISQM (UK) 2 says the review is an objective evaluation of the significant judgments made by the engagement team and the conclusions reached on them. It is not an evaluation of whether the whole engagement complies with standards or firm policy. Paragraph 9 adds that the reviewer is not a member of the engagement team, does not take over the engagement partner’s responsibility for quality, and is not required to obtain evidence to support the opinion.

The standard applies to audits and reviews of financial statements for periods beginning on or after 15 December 2022, and to other assurance and related services engagements beginning on or after that date (paragraph 11). Paragraph 4 makes it scalable: a review of an engagement with few significant judgments will be lighter than one on a complex audit.

Who can act as the engagement quality reviewer?

Paragraph 13(b) allows a partner, another individual in the firm, or an external individual. The rules on eligibility are firm policies the standard requires:

  • Appointment. An individual with the competence and authority to do so must appoint the reviewer (paragraph 17). Paragraph A2 accepts that in a smaller firm this may have to be a member of the engagement team.
  • Eligibility. The reviewer must not be on the engagement team and must have the competence, capabilities, time and authority to do the review, comply with relevant ethical requirements including those on objectivity and independence, and meet any legal eligibility rules (paragraph 18). In the UK those ethical requirements include the FRC’s Ethical Standard; see auditor independence.
  • Cooling off. A former engagement partner cannot become the reviewer on that engagement until a cooling off period of at least two years has passed, or longer if ethical requirements demand it (paragraph 19).
  • Public interest entities. A UK paragraph added after paragraph 18 requires the reviewer to be eligible for appointment as a statutory auditor and not involved in the audit. If every statutory auditor in the firm worked on the audit, another firm must carry out the review.
  • Outside help. Paragraph A4 recognises that a smaller firm or sole practitioner may have nobody eligible and can contract an external individual.

If the reviewer’s eligibility becomes impaired, paragraph 23 requires the reviewer to tell the firm and either decline the appointment or, if the review has started, stop. The firm must have a process to appoint a replacement (paragraph 22).

What must the reviewer actually do?

Paragraph 25 lists the procedures. The reviewer must:

  1. read and understand what the engagement team has communicated about the engagement and the entity, and what the firm’s monitoring and remediation process has identified about relevant deficiencies;
  2. discuss significant judgments made in planning, performing and reporting with the engagement partner and, where relevant, others in the team;
  3. review selected documentation on those judgments and evaluate the basis for them (including professional scepticism), whether the documentation supports the conclusions and whether the conclusions are appropriate;
  4. for audits, evaluate the basis for the engagement partner’s conclusion that independence requirements have been met;
  5. evaluate whether appropriate consultation took place on difficult or contentious points and differences of opinion;
  6. for audits, evaluate the basis for the engagement partner’s view that their own involvement was sufficient and appropriate; and
  7. review the financial statements and the auditor’s report, including any key audit matter descriptions.

A UK addition following paragraph 24 requires the reviewer to consider the firm’s compliance with relevant ethical requirements on the engagement, form an independent opinion on the appropriateness and adequacy of the safeguards applied, and consider how well the engagement partner documented that. Paragraph A29 encourages timely review at every stage, for example looking at the audit strategy at the end of planning, so problems can be fixed before the report date.

What extra applies to public interest entity audits?

For these audits the reviewer must assess whether the key audit partner could reasonably have reached the opinion and conclusions in the draft auditor’s report and the additional report to the audit committee, and the firm must have a procedure for resolving disagreements between them (UK requirements following paragraph 24). UK paragraphs following paragraph 25 list further points to consider, including the firm’s independence, the significant risks and how they were managed, the reasoning on materiality, advice from external experts, corrected and uncorrected misstatements, and what was discussed with the audit committee and with the FRC. The results must be discussed with the key audit partner, and UK paragraphs following paragraph 30 add documentation requirements, including recording the key audit partner’s draft opinions.

What happens if the reviewer is not satisfied?

Paragraph 26 requires the reviewer to tell the engagement partner if they have concerns that significant judgments or the conclusions on them are not appropriate. If the concerns are not resolved, the reviewer must tell an appropriate individual in the firm that the review cannot be completed. Paragraph A49 says firm policy may also require consultation inside or outside the firm.

The consequence is practical. Paragraph 24(b) requires firm policy to stop the engagement partner dating the report until the reviewer has given notice under paragraph 27 that the review is complete. A disagreement therefore holds up the report; it cannot be signed around.

How must the review be documented?

Under paragraph 30, the documentation must be enough for an experienced practitioner with no previous connection to the engagement to understand the procedures performed and the conclusions reached. It must include the names of the reviewer and any assistants, the engagement documentation reviewed, the basis for concluding the review is complete, the notifications under paragraphs 26 and 27, and the date of completion. Paragraph 29 requires it to be kept with the engagement documentation. Paragraph A53 allows the documentation to be finalised after the report date but before the final file is assembled, unless firm policy is stricter. File assembly is covered in audit documentation.

How might a small firm handle one?

Illustration only. A two partner firm audits a family owned distributor whose bank facility expires three months after the year end. The firm’s risk assessment identifies going concern judgments as a quality risk and its policy calls for a review on audits with significant going concern doubt. Both partners have worked on the file, so the firm contracts an external reviewer, as paragraph A4 allows.

The reviewer reads the planning memorandum after planning is complete, and later discusses the going concern assessment and stock provision with the engagement partner. The reviewer then reviews the cash flow forecast workpapers, the independence file, the draft accounts and the draft report. The reviewer queries whether the going concern note describes the refinancing risk fully. The note is expanded, the reviewer notifies completion with the date, and only then does the engagement partner date the report. The reviewer’s memorandum records each step.

A firm whose review comes only at the end, covers every working paper rather than the significant judgments, or lets the report be dated first is out of line with ISQM (UK) 2. Weaknesses of this kind are a focus of audit quality inspections, and the going concern judgments themselves are explained in going concern and the auditor.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.