Can a former engagement partner be the EQ reviewer?
When a former engagement partner may act as engagement quality reviewer for the same client under ISQM 2, and how a firm plans and records it.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
A mid-sized firm rotates the engagement partner on one of its larger audit clients. The outgoing partner knows the client better than anyone, has time in the coming season, and is the obvious person to act as engagement quality reviewer. It seems efficient. It is also exactly the arrangement ISQM 2 is designed to stop, at least for a while.
The question comes up most in smaller firms, where the pool of partners who could act as reviewer is limited. Knowing the rule, and planning reviewer changes around it, avoids a late scramble when the audit report is nearly ready.
Why the reviewer has to stand apart
As quoted by ACCA, the IAASB defines an engagement quality review as an objective evaluation of the significant judgements made by the engagement team and the conclusions reached on them, performed by the engagement quality reviewer and completed on or before the date of the engagement report.
The key word is objective. A reviewer who made the judgements, or who made similar judgements on the same client last year, is not evaluating them from outside; they are checking their own thinking. ISQM 2, Engagement Quality Reviews, deals with the appointment and eligibility of the reviewer for precisely this reason.
ACCA explains that the reviewer cannot be a member of the audit engagement team, so that they remain objective and independent of the audit. It adds that the reviewer may be a member of the firm or external to it.
The two-year cooling-off period
ACCA's article on ISQM 2 explains that a two-year cooling-off period is required before an audit engagement partner can act as engagement quality reviewer for a former client.
Put in practical terms for the firm in the opening example: the outgoing engagement partner cannot simply step across into the reviewer's role. The firm needs a different reviewer for the next two years, and only after that may the former partner be considered, subject to the other eligibility requirements and the firm's own policies.
The firm's policy may be stricter than the minimum, and ethical requirements in the firm's jurisdiction may add conditions. Check the current text of ISQM 2 and any local requirements before deciding.
Not on the team, in any role
The cooling-off rule is about former partners. The team rule is wider. The reviewer cannot be a member of the engagement team, which includes people in other roles, not only the partner. A manager supervising this year's fieldwork, or a specialist working on the current audit, is part of the team. Someone who held such a role in earlier years is not on this year's team, but their objectivity still deserves a look.
Questions to settle before naming a reviewer:
- Has this person served as engagement partner for the client recently?
- Are they part of this year's engagement team in any capacity?
- Do they have a personal or financial relationship with the client or its management?
- Have they been closely involved in consultations on this engagement in a way that would compromise their objectivity?
- Do they have the competence and time for the review?
Who Achekam allows to be named
In Achekam, a partner can name an engagement quality reviewer for an engagement. The reviewer must be a partner or senior manager not on the engagement team, and that person must clear the audit report before it can be issued. For a South African firm, Achekam does not require a reviewer for any engagement type; naming one is the firm's decision under its own quality policy.
The "not on the engagement team" check covers the current team. A cooling-off period relates to past roles on the client, so the firm should check its own records of who served as engagement partner in earlier years before naming the reviewer, rather than relying on the current team list.
Recording relationships and declarations
Objectivity is not only about past roles. Achekam lets staff record annual independence declarations and any interest, relationship or gift involving a client, and anyone can check whether a person has an active independence exception for a client.
Two limits are worth knowing. Achekam has no way to approve an independence declaration, and assigning a person to an engagement does not check the independence register. So before naming a reviewer, someone should look the proposed person up in the register and record that the check was done. A short note in the engagement file is enough: who checked, when, and what was found.
Planning reviewer changes ahead
The cooling-off rule is easy to meet if the firm plans for it and awkward if it does not. Sensible habits:
- Keep a rotation schedule that shows, for each client requiring a review, the engagement partner and reviewer by year.
- Check the schedule at continuance, before planning starts, not when the report is being drafted.
- Look two years ahead when a partner rotates off a client: who will review in each of those years?
- Consider an external reviewer where the firm does not have enough eligible partners or senior managers.
- Record the eligibility assessment each time a reviewer is named.
Which engagements need a quality review at all is covered in which engagements need an EQR, and the reviewer's work itself is set out in the engagement quality reviewer. Add a column for "former engagement partner, year last served" to the firm's rotation schedule this season.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
