Post-Implementation Review of AS 1220, Engagement Quality Review
PCAOB staff have completed a post-implementation review of AS 1220, Engagement Quality Review. The review of AS 1220 is the PCAOB’s first post-implementation review. The review includes key findings, messages for auditors and audit committees, and enhancements to achieve more effective reviews.
To perform the review the staff analyzed information collected through the PCAOB’s inspection and enforcement programs, third-party data, and responses to a public request for comment.
The staff’s review of AS 1220 provides new insight into changes in engagement quality review practices and audit quality over time. Although the staff's review provides new descriptive evidence and facts about he engagement quality review process, as in other studies on the impact of regulatory changes, the review does not provide causal evidence regarding the impact of the rulemaking.
Overall, the evidence indicates that engagement quality reviewers have greater involvement earlier in the audit process, and that audit firms have reassessed their engagement quality review assignment practices. The staff’s review also provides some evidence of improvements in audit quality after the effective date of AS 1220. Additionally, the evidence indicates that the standard did not give rise to significant unintended consequences. In terms of direct costs, although engagement quality reviewers, on average, spend more time performing their reviews in the post AS 1220 period, increases in reviewer hours are overall very small relative to average total audit hours and the average total cost of an audit.
Further details regarding the review of AS 1220, including technical details of the statistical analyses, are presented in a separate staff white paper. The white paper provides additional transparency into the staff’s approach to the review, properties of the data sets used, the methods applied, and the results of the analyses.