[18.0000]_engagement_quality_control_and_other_reviews_(kam_international_2011)

[18.0000] Engagement quality control and other reviews [18.0010] eAudIT roadmap [18.0015]  Objective         [18.0020] Our objective in the KAM topic titled, "General principles and responsibilities" includes the implementation of quality control procedures at the engagement level that provide us with reasonable assurance that our engagement complies with relevant professional, legal, regulatory and KPMG requirements. [18.0025] This KAM topic contains requirements and guidance on quality control and other engagement reviews to achieve that objective. [Source: ISA 220.6] [18.0500] Introduction [18.0505] This KAM topic defines the roles and responsibilities of the engagement quality control (EQC) reviewer and other engagement reviewers, who are not members of the engagement team, but are responsible for conducting various types of reviews. [18.0510] This KAM topic is applicable to both audits of financial statements and reviews of interim financial information, unless otherwise noted. Refer to the KAM topic titled, "Engagements to review interim financial information or other historical financial information of an audit client" for requirements and guidance related to review of interim financial information.  Click here for content specific to integrated audits performed in accordance with PCAOB Auditing Standard No. 5. [18.0510ia1] This KAM topic is also applicable to integrated audits, unless otherwise noted. [18.0515] For related risk management considerations, refer to Chapter 10 of the Global Quality and Risk Management Manual ("GQ&RMM") which addresses engagement team composition, engagement conduct, engagement review and the conduct of engagement quality control reviews, including documentation thereof. [18.1000] Engagement reviewers (eAudIT activity 1.3.1) [18.1005] The following table summarizes the engagement reviewers who perform a review, as relevant, and the specific reference to the relevant sections in this KAM topic. When the relevant requirements and guidance are not included in this KAM topic, reference to the KAM topic where such content is located is noted below.  [18.1045]  Engagement quality control (EQC) review [18.1050] An EQC review is the performance of an objective evaluation by the EQC reviewer of the significant judgments made by the engagement team and the related conclusions it reached in formulating the report(s). [Source: ISA 220.7(b); Source: ISQC 1.12(d)] [18.1055] An EQC review is an important element of KPMG's system of quality control that is designed to provide reasonable assurance that, among other things, the entity's financial statements comply with applicable accounting and reporting standards and relevant regulatory requirements and that the report(s) is appropriate. [Source: ISQC 1.11] [18.1060]  Criteria for EQC review [18.1075] For certain engagements where there is no requirement for an EQC review in KAM 18.1065, a LSQC review may be performed, if determined by the risk management partner or country head of audit. [18.1085] Refer to the section in this KAM topic beginning at KAM 18.1490 for additional guidance and requirements regarding LSQC review. [18.1090] Changes in circumstances during the engagement [18.1095] Remaining alert for changes in circumstances allows the engagement partner to identify situations in which an EQC review is necessary, even though at the start of the engagement, such an EQC review was not required. [ISA 220.A26] [18.1100] Similarly, changes in circumstances may mean that an EQC review is no longer required.  [18.1105]  Appointment of an EQC reviewer (eAudIT activity 1.3.1)  [18.1135] The EQC reviewer may be a partner (or other appropriate individual) within the KPMG member firm or another KPMG member firm.Where an appropriate and qualified EQC reviewer has not been identified within the KPMG member firm, the risk management partner may contact the risk management partner of another KPMG member firm to identify an appropriate and qualified EQC reviewer from that KPMG member firm. [18.1140] To help maintain the objectivity of the EQC reviewer, the engagement partner does not select the EQC reviewer. [Source: ISQC 1.A49] [18.1145] What constitutes sufficient and appropriate technical skills, experience and authority to objectively evaluate the significant judgments the engagement team made and the related conclusions it reached in formulating the report(s) depends on the circumstances of the engagement. [Source: ISA 220.7(c); Source: ISQC 1.A47] For example, Click here for content specific to integrated audits performed in accordance with PCAOB Auditing Standard No. 5. [18.1145ia1]  In addition, the EQC reviewer for an audit of ICOFR is likely to be an individual with sufficient and appropriate experience and authority to act as an audit engagement partner on audits of ICOFR.   [18.1155]  Engagement team's responsibilities for the EQC review [18.1160] Regardless of the involvement of the EQC reviewer (or others who assist the EQC reviewer), the performance of an EQC review does not reduce the responsibilities of the engagement partner for the engagement.  [Source: ISA 220.A27; Source: ISQC 1.A44] [18.1170] Although an EQC reviewer may need to be appointed during the CEAC process, he or she has no responsibilities during that process.  [18.1175] Refer to KAM 18.1355 for additional guidance regarding documentation of the EQC review. [18.1180] It is a matter of professional judgment for the engagement partner and/or other engagement team members to determine when to bring significant matters to the attention of the EQC reviewer. However, doing so in a timely manner at appropriate stages during the engagement allows significant matters to be promptly resolved to the EQC reviewer's satisfaction before communicating our conclusions on the matter, if applicable, with management and/or those charged with governance. [Source: ISA 220.A24; Source: ISQC 1.A43]   [18.1185] Significant matters that have been identified by the engagement team are, to the extent possible, brought to the EQC reviewer's attention during risk assessment. [18.1190] In the interest of efficiency and of maintaining the EQC reviewer's objectivity, matters are not usually brought to the EQC reviewer's attention in a piecemeal manner or before the engagement team has formulated a reasoned judgment or conclusion. [18.1195] The engagement partner may have discussions with the EQC reviewer during the engagement, for example, to establish that a judgment made by the engagement partner will be acceptable to the EQC reviewer. Such discussion avoids identification of differences of opinion at a later stage of the engagement and need not compromise the EQC reviewer's objectivity and consequently his or her eligibility to perform the EQC review. Refer to KAM 18.1240 for additional information on differences of opinion between the engagement partner and the EQC reviewer. Refer to the section in this KAM topic beginning at KAM 18.1280 regarding the importance of maintaining the objectivity of the EQC reviewer. [Source: ISQC 1.A48] [18.1200] Where the nature and extent of the discussions become significant, the EQC reviewer's objectivity may be compromised unless care is taken by both the engagement team and the EQC reviewer to maintain the EQC reviewer's objectivity. Where this is not possible, as noted in KAM 18.1320, another individual may be appointed to take on the role of either the EQC reviewer or the person to be consulted by the engagement team. [Source: ISQC 1.A48] [18.1205] Coordination of the EQC review [18.1210] The engagement partner may appoint the engagement manager or another engagement team member to coordinate the engagement team's interaction with the EQC reviewer and facilitate the conduct of the EQC review in an effective and timely manner throughout the engagement. [18.1215] The individual responsible for coordination may develop an EQC review plan to be discussed with the EQC reviewer early in the engagement (e.g. during risk assessment). [18.1220] The objective of the EQC review plan is to facilitate timely review by the EQC reviewer of the significant judgments made and conclusions reached by the engagement team and to enable the engagement team to respond fully to matters raised by the EQC reviewer prior to the date of the report(s). [Source: ISA 220.A24; Source: ISQC 1.A43] [18.1225] For example, the EQC review plan may include the following: [18.1230] Local requirements may apply in relation to the above. [18.1235] Differences of opinion between the engagement partner and the EQC reviewer  [18.1245] Conduct of the EQC review [18.1250] Responsibilities of the EQC reviewer [18.1270] The extent of the EQC review may depend, among other things, on the complexity of the engagement, whether the entity is a listed entity, and the risk that the report(s) may not be appropriate in the circumstances. [Source: ISA 220.A27] [18.1275] To assist with this determination, the EQC reviewer may, among other actions: [18.1280]  Objectivity [18.1290] Assuming any of the responsibilities of the engagement team includes having responsibility for the audit/review of any of the reporting entity's components, employee benefit plans or related entities. [18.1295] The EQC reviewer is not prohibited from attending meetings of the engagement team, with management or those charged with governance. In appropriate situations, such involvement may increase the effectiveness of the EQC review. However, the EQC reviewer and the engagement team are careful to avoid involving the EQC reviewer in decision making, or creating confusion within the engagement team, with management or those charged with governance as to the responsibilities of the engagement partner and the EQC reviewer. [18.1300] The EQC reviewer's objectivity may be threatened by involvement in certain engagement team activities. For example, the EQC reviewer may not be able to maintain his or her objectivity or may give the appearance that such objectivity has not been maintained by inadvertently making decisions for the engagement team, assuming responsibilities of the engagement team or supervising the engagement team. [18.1305] The EQC reviewer uses professional judgment in determining whether to be involved in the engagement team activities noted within this section of this KAM topic, or similar activities that may impair his or her objectivity and, if involved, how to maintain his or her objectivity. [Source: ISQC 1.40] For example, in order to: [18.1310] Concerns regarding objectivity [18.1325]  Performing and documenting the EQC review (eAudIT activities 4.7.1 and/or 7.1.2.6) [18.1350] Documentation of the items discussed in KAM 18.1345 may be prepared by either the engagement team or the EQC reviewer. It is not necessary to document discussions when the subject matter of such discussions is already included in the documentation that has been reviewed by the EQC reviewer (including documentation modified based on questions or comments raised by the EQC reviewer during the EQC review).  [18.1355] Documentation of the EQC review may be completed after the date of the report(s) as part of the assembly of the final engagement file, and may include matters that related to evidence obtained, discussed and agreed with relevant members of the engagement team prior to the date of the report(s). However, it is important to remember that preparing sufficient and appropriate audit documentation on a timely basis helps to enhance the quality of the audit/review and facilitates the effective review and evaluation of the audit/review evidence obtained and conclusions reached before the report(s) is finalized. Documentation prepared after the audit/review work has been performed is likely to be less accurate than documentation prepared at the time such work is performed.  [Source: ISA 220.A25; Source: ISQC 1.A42; Source: ISA 230.A1] [18.1360] Conducting the EQC review in a timely manner at appropriate stages during the engagement allows significant matters to be promptly resolved to the EQC reviewer's satisfaction on or before the date of the report(s). [Source: ISA 220.A24; Source: ISQC 1.A43] [18.1365] For the initial audit, the EQC reviewer may consider reviewing the risk assessment activities (or additional activities as determined to be necessary) early in the audit. [18.1375] The EQC review assists the engagement team in determining whether sufficient appropriate evidence has been obtained prior to the date of the report(s). [Source: ISA 220.A23] [18.1380] Refer to the KAM topics titled, "Audit documentation" and "Engagements to review interim financial information or other historical financial information of an audit client" for additional guidance and requirements on audit/review documentation.  [18.1385] EQC review performed in accordance with PCAOB Auditing Standard No. 7, Engagement Quality Review (PCAOB AS 7) [18.1400] For engagements conducted in accordance with the auditing standards of the PCAOB for which the resulting report(s) is restricted as to use solely by a KPMG member firm (e.g. reports issued by component auditors in a group audit), the group engagement team communicates in its group audit instructions that an EQC review pursuant to AS 7 is not required to be performed by the component auditor (i.e. the EQC reviewer for the group will perform the required EQC review procedures at the group level). Refer to Chapter 10 of the ISRM for guidance about reporting to the group engagement team when scope limitation(s) exist.  [18.1405] Considerations specific to U.S. SEC engagements [18.1415] The country of origin retains full responsibility for the audit/review of the financial statements/financial information included in such filings with the U.S. SEC, the EQC reviewer is not a partner of the U.S. KPMG member firm. The phrase "financial statements included" refers to those financial statements that form part of the filing document; mere consolidation of financial information does not constitute inclusion in U.S. SEC filings. [18.1420] Refer to the Risk Management Manual - U.S. which includes guidance on document retention policies for engagements meeting the definition of U.S. SEC engagement. [18.1425] Refer to KAM 18.1730 for requirements and guidance regarding conducting filing reviews (for U.S. SEC filings). [18.1430] EQC reviews involving audit/reviews of multiple entities [18.1435] There are instances where the audits/reviews of multiple entities are performed by a single engagement team and have a single EQC reviewer who reviews all reports requiring an EQC review. For example, investment companies and funds may not have employees of their own and rely on a fund manager to provide them with administration services including the maintenance of their financial records and the preparation of their financial statements/financial information. It is common for groups of funds, managed by one fund manager, to be audited/reviewed by one engagement team. [18.1445] Engagements involving reports of multiple financial statements prepared, in whole or in part, under common procedures, policies, systems, people and/or controls occur when a KPMG member firm is engaged to perform an audit/review engagement for a number of entities whose financial reporting activities are performed by a single entity such as a service organization, a financial shared service centre or a fund manager. [18.1450] Debriefing with the engagement team [18.1455] The EQC reviewer may hold a debrief discussion near the end of the engagement with the engagement team to share ideas for subsequent EQC reviews.   [18.1460]  Assisting the EQC reviewer [18.1465] The EQC reviewer may use an audit partner or other person, who is not an engagement team member, to assist with his or her review of audit/review documentation, if permitted by local law and regulations. Such assistance does not reduce the responsibilities of the EQC reviewer for the performance of the EQC review and the overall conclusions reached. [18.1470] In determining whether to use a specific individual to assist in the review of audit/review documentation, the EQC reviewer may consider: [18.1480] Refer to the section in this KAM topic beginning at KAM 18.1285 for additional EQC reviewer requirements to maintain objectivity. [18.1485] If a difference of opinion arises between an individual who assists in the EQC review and the engagement team and/or EQC reviewer, refer to KAM 18.1240. [18.1490] Limited scope quality control (LSQC) review [18.1495] Criteria for a LSQC review [18.1500] For certain engagements where there is no requirement for an EQC review, addressed in KAM 18.1065, a LSQC review may be performed, if determined by the risk management partner or country head of audit. [18.1510] Examples of engagements where a LSQC review may be appropriate include: [18.1520] Appointment of a LSQC reviewer (eAudIT activity 1.3.1) [18.1545] The LSQC reviewer may be a partner (or other appropriate individual) within the KPMG member firm or another KPMG member firm. [18.1550] To help maintain the objectivity of the LSQC reviewer, the engagement partner shall not select the LSQC reviewer.  [18.1555] Engagement team's responsibilities for the LSQC review [18.1565] Differences of opinion between the engagement partner and LSQC reviewer  [18.1575] Conduct of the LSQC review [18.1580] The guidance for conducting the EQC review that is addressed from KAM 18.1270 to KAM 18.1305 is also applicable to the conduct of the LSQC review. [18.1585] Responsibilities of the LSQC reviewer [18.1595] Objectivity [18.1605] Concerns regarding objectivity [18.1620]  Performing and documenting the LSQC review (eAudIT activities 4.7.1 and/or 7.1.2.6) [18.1630] Assisting the LSQC reviewer [18.1640] Refer to the section in this KAM topic beginning at KAM 18.1595 for additional LSQC reviewer requirements to maintain objectivity.  [18.1645] Designated review [18.1650] Criteria for designated reviews [18.1660] In certain cases, foreign regulatory authorities may accept financial statements prepared and audited in accordance with the accounting, financial reporting, auditing, and/or auditor independence standards of another jurisdiction. The procedures performed by the designated review partner may vary, depending on a number of factors, such as whether the standards applied in the preparation and audit of the financial statements included in the offering document are the same as, or different than, the standards generally applied to the preparation and audit of financial statements in the filing country. [18.1665] The specific regulatory authorities for which this requirement applies are decided by the KPMG member firm in the jurisdiction in which the document is to be filed. [18.1670] Appointment of a designated review partner (eAudIT activity 1.3.1) [18.1685] A filing review partner performs the designated review for document offering securities in the United States that are exempt from registration requirements of the U.S. Securities Act of 1933 based on Rule 144A, as these exempt offerings are not covered by Appendix K but may be subject to provisions of the U.S. securities laws.  [18.1690] Conduct of the designated review [18.1700] The designated review is separate from and in addition to the EQC review, however both reviews may be performed by the same individual to the extent the individual has the relevant technical skills, experience and authority to perform both roles. [18.1705] Because of the limited nature of the review performed by the designated review partner, he or she cannot, and does not, assume any responsibility for detecting a departure from, or non-c