Advanced Audit and Assurance (International) · Quality management (firm and engagement level)

ISQM 2 Engagement Quality Reviews and Engagement Performance

Updated 11 October 2026 · Fact-checked

An engagement quality review is an objective evaluation, done before the report is dated, of the significant judgements the team made and the conclusions it reached. ISQM 1 sets when one is required. ISQM 2 sets who can be the reviewer and what they must do. ISA 220 (Revised) covers the partner's duties.

Understand Engagement Performance and ISQM 2 Engagement Quality Reviews

Start with who owns quality on an audit. Under ISA 220 (Revised), the engagement partner is responsible for managing and achieving quality on the engagement. That means being sufficiently and appropriately involved throughout. It is not enough to sign the report at the end. The partner sets the tone, makes sure the team has the right competence and time, and takes responsibility for direction, supervision and review.

Direction, supervision and review work together. Direction means telling the team what the engagement is about, the risks, and what is expected of them. Supervision means tracking progress, dealing with problems and coaching. Review means checking the work done. The partner must review key areas such as significant risks, significant judgements and other matters important to the engagement. The review must be done by more experienced team members of the right standard, and it must be documented.

Consultation and differences of opinion deal with hard matters. The partner must make sure the team consults on difficult or contentious issues, with people who have the right knowledge, seniority and authority. The conclusions must be agreed and implemented. If the team disagrees with the person consulted, or with the EQR, the matter is resolved under the firm's policies. The report must not be dated until the difference is resolved.

An engagement quality review is a second line of defence for higher-risk audits. ISQM 1 requires the firm to set policies that require an EQR for audits of listed entities, for engagements where law or regulation requires one, and for engagements where the firm decides one is needed because of the nature or circumstances, such as a high public interest or unusual risk. ISQM 1 also requires the firm to assign responsibility for appointing the reviewer to the firm's leadership (or a delegate). The engagement partner does not appoint the reviewer. ISQM 2 then covers the engagement quality reviewer: eligibility and performance.

The reviewer must be objective, and must have the competence, capabilities and authority to do the job. They cannot be a member of the engagement team. ISQM 1 requires the firm's policies to set a cooling-off period of at least two years, or longer if law, regulation or ethical requirements demand, before the engagement partner can become the reviewer on that engagement. ISQM 2 then requires that the reviewer has not served as engagement partner within that period.

The reviewer evaluates the significant judgements made by the team and the conclusions reached. They read the financial statements and the proposed report. They also evaluate the team's evaluation of the firm's independence, the team's consultation on difficult or contentious matters, and whether the documentation selected reflects the judgements made and supports the conclusions. This is not a re-audit. It is focused on the significant matters.

If the reviewer has significant concerns that the judgements or conclusions are not appropriate, they must notify the engagement partner. The report cannot be dated while those concerns are unresolved. The reviewer must complete the review before the report is dated, and the engagement partner must not date the report until then.

Key rules to remember

When an EQR is required (ISQM 1): EQR needed if: listed entity audit OR required by law or regulation OR firm's criteria say the engagement merits one; The firm sets the criteria. They typically cover public interest, complexity and unusual risk.
Timing of the EQR: EQR completed BEFORE the report is dated; The engagement partner cannot date the report until the EQR is complete.
Eligibility of the reviewer: Competence + capabilities + authority + objectivity + not on the engagement team + not the engagement partner within the cooling-off period; ISQM 1 requires a cooling-off period of at least two years (or longer if law, regulation or ethical requirements demand) before the engagement partner can become the reviewer on that engagement.
Engagement partner responsibility (ISA 220 Revised): Overall responsibility for quality + sufficient and appropriate involvement throughout; The partner may assign tasks but remains responsible.
Team's approach to quality: Direction + supervision + review; Review must be done by more experienced team members and documented.

How to solve Engagement Performance and ISQM 2 Engagement Quality Reviews questions

Use this method for any question on engagement performance or EQRs. Tie each point to the scenario, because the exam rewards application and professional skills.

1Read the requirement and identify the area: partner responsibilities, supervision and review, consultation, differences of opinion, or EQR.
2Pick out scenario facts that matter, such as listed status, public interest, partner involvement, junior staff, time pressure, or a disagreement.
3State the rule briefly: the ISA 220 (Revised) duty, or the ISQM 1 trigger or ISQM 2 requirement.
4Apply the rule to the facts and conclude on whether quality is at risk, using the wording of the scenario.
5Explain the consequence, for example the report cannot be dated yet, or the reviewer is ineligible.
6Recommend specific actions, such as consult an expert, appoint a different reviewer, or resolve the disagreement.
7Close with a clear conclusion in the form requested, such as a memo or briefing note, to earn professional skills marks.

Quickest way: Rule, fact, action

When to use it: Use it when you have little time and the requirement asks for issues and recommendations.

Write the rule in one line.
Link it to one fact from the scenario.
State the risk or breach.
Give the action in one line.
Repeat for each issue and watch the mark allocation.

Common mistakes in Engagement Performance and ISQM 2 Engagement Quality Reviews

Saying the EQR is only for listed entities.
Students remember the listed-entity example and stop there.
Fix: State all three triggers: listed entity, law or regulation, and the firm's own criteria. Say the firm sets criteria for other engagements.
Treating the EQR as a second audit or a full file review.
The word review sounds like checking everything.
Fix: Say the EQR is an objective evaluation of significant judgements and conclusions. It is focused and is done before the report date.
Letting a member of the engagement team, or the engagement partner just rolled off, act as the reviewer.
Students focus on competence and forget objectivity.
Fix: Check eligibility: competence, authority, objectivity, not on the team, and a cooling-off period for the former engagement partner.
Saying the partner can delegate responsibility for quality.
Students confuse delegating tasks with delegating responsibility.
Fix: Say the partner can assign design or performance of tasks. The partner stays responsible and must be sufficiently involved throughout.
Ignoring the date of the report when a difference of opinion or EQR is outstanding.
Students describe the issue but miss the consequence.
Fix: State that the report cannot be dated until the EQR is complete and differences are resolved.

Worked examples

Example 1

Pellam & Co is the auditor of Karto Ltd, a listed company. The engagement partner, Dev, led the audit last year. Dev proposes that his colleague Mina, a manager on the audit team, should perform the EQR this year because she knows the client best. Evaluate whether this is acceptable and advise on the EQR. (8 marks)

Show the solution

Rule: ISQM 1 requires an EQR for audits of listed entities. So an EQR is required here.
Rule: ISQM 1 requires the firm to assign responsibility for appointing the reviewer to the firm's leadership or a delegate. The engagement partner does not appoint the EQR, so Dev proposing Mina is itself inappropriate.
Rule: under ISQM 2 the reviewer must be objective and must not be a member of the engagement team.
Fact: Mina is a manager on the audit team. She is on the engagement team, so she is not eligible.
Risk: she would be reviewing her own judgements, which creates a self-review threat and removes objectivity.
Rule: the reviewer also needs competence, capabilities and authority. Her knowledge of the client does not make up for lack of objectivity.
Action: the firm should appoint someone outside the team, for example a partner or equivalent with relevant listed company experience.
Action: the report must not be dated until the EQR is complete and any significant matters are resolved.

Answer: An EQR is required because Karto is listed. Dev should not appoint the reviewer, because the firm appoints the EQR through its policies and leadership. Mina cannot perform it because she is on the engagement team and lacks objectivity. The firm should appoint a suitably experienced, independent reviewer, and the report cannot be dated until the review is complete.

Exam tips

Start every EQR answer by checking the trigger: listed, legal requirement, or firm criteria. Then check eligibility and timing.
Use the exact verbs: the EQR evaluates significant judgements and conclusions. Do not say it re-performs the audit.
Scenario questions often hide an ineligible reviewer or a partner who is absent. Look for team membership and cooling-off facts.
End with a recommendation. Professional skills marks reward clear, practical advice and a concluding view.
Distinguish the partner's duties (ISA 220 Revised), the firm's EQR policy (ISQM 1) and the reviewer's duties (ISQM 2).

Practice questions from Quality management (firm and engagement level)

Engagement Performance and ISQM 2 Engagement Quality Reviews in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CA FinalEngagement Quality Control Review and Eligibility of Reviewers

Engagement Performance and ISQM 2 Engagement Quality Reviews: frequently asked questions

When is an engagement quality review required?

ISQM 1 requires the firm to have policies that require an EQR for audits of listed entities, engagements where law or regulation requires one, and engagements the firm decides need one. The firm sets its own criteria for the last group, often based on public interest and risk.

What is the difference between an EQR and a file review?

An EQR is an objective evaluation of significant judgements and conclusions, done by someone outside the team before the report is dated. A file review by the team's senior members is part of ordinary supervision and review. A later firm inspection of completed files is part of monitoring and is a different process.

Who can be the engagement quality reviewer?

The reviewer must have the competence, capabilities and authority for the engagement and must be objective. They cannot be on the engagement team. The firm appoints the reviewer, not the engagement partner. ISQM 1 requires a cooling-off period of at least two years (or longer if law, regulation or ethical requirements demand) before the engagement partner can become the reviewer on that engagement.

What are the engagement partner's responsibilities under ISA 220 (Revised)?

The partner is responsible for managing and achieving quality and for being sufficiently and appropriately involved throughout. This covers direction, supervision and review, consultation, resolving differences of opinion and making sure the team has the right resources. The partner can assign tasks but remains responsible.