The FRC’s AQR team visited nine audit firms “to review their audit methodology, guidance and training provided to partners and staff in respect of the engagement quality control review (EQC review) process”.  Meetings were also held with a selection of EQCRs “to understand how they perform this role and the challenges they face”.

The review follows other thematic reviews conducted in January 2016, January 2014 and December 2013.  Thematic reviews analyse further aspects of auditing which are not considered in detail during the FRC’s routine audit inspections of individual firms.  Thematic reviews seek to identify both good practice and areas of common weakness among audit firms.

Overall the FRC indicates that “all firms have established EQC review procedures for financial statement audits”.  However it does indicate that whilst there were instances where the EQC review “had directly contributed to improving the quality of the audit”, for a tenth of audits the review “identified weaknesses in the audit work performed which the EQC review process had not identified”.

The review provides a number of areas where firms should consider making improvements to their procedures and the application of these procedures in practice.  The key messages from the review are that audit firms should consider whether:

their EQCR eligibility criteria include adequate levels of technical expertise, experience and authority for audits of listed entities and/or in specialist sectors, consistent with that required by the individual signing the audit report;

their processes can be improved for the EQCR to evaluate whether they have maintained their objectivity throughout the audit so that any potential threats are identified, considered and safeguarded. It should be clear to the Audit Committee that the EQCR is not a member of the audit team but part of the firm’s quality control processes;

actions are needed to ensure that on all audits the EQCR’s involvement is timely and effective in maintaining audit quality and that matters identified by the EQCR are appropriately addressed; and

the evidence of the EQCR’s review and challenge requires improvement to meet the increased requirements of the EU Audit Regulation and Directive.

The FRC comments that it “expects to see improvements in the areas identified by [the] report in future inspections of individual firms”.

The press release and full report are available on the FRC website.