Review Partners and Engagement Partners: The Interaction Process in Engagement Quality Review

Abstract

SUMMARY: This study examines the engagement quality review (EQR) process from the perspective of the review partner. A questionnaire was administered to 127 audit partners in public accounting firms, experienced in performing EQRs. The questionnaire covered the elements, associations, and contextual features surrounding the EQR process. Partners recalled an engagement of their choosing where they acted in the role of review partner and where the review process involved direct negotiation or discussions with the engagement partner to resolve one or more issues. The results provide a comprehensive picture of a typical EQR; the issues involved, the process, and the outcomes that may result. Taken together, the results describe a professional, collegial, non-adversarial process, primarily focused on the objective of resolving difficult and complex client accounting issues. The ultimate resolution of the issue giving rise to the interaction may be a reflection of the suggestions of the reviewing partner or the engagement partner; frequently it is a new and synergistic solution.

Impact of Partner Change on Audit Quality: An Analysis of Partner and Firm Specialisation Effects

“…Prior studies have found conflicting results on the relationship between audit partner rotation and audit quality. A number of studies report that audit partner rotation leads to higher audit quality (Tan ; Emby and Favere Marchesi ; Hamilton et al. ) while some others found opposite results (Chi and Huang ; Chi et al.…”

“…). In particular, the industry expertise of the lead engagement partner is likely to have a significant influence on audit quality as it is the lead engagement partner that plays a crucial role in audit planning and implementation (Emby and Favere‐Marchesi ). Prior Australian studies examine the impact of industry specialisation on audit quality (Craswell et al.…”

Examining PCAOB disciplinary orders on small audit firms: Evidence from 2005 to 2018

“…For example, He, Pittman, Rui, and Wu (2017) argue that the social ties between the engagement partner and the client's audit committee may prevent the auditors from conducting a rigorous audit. Regarding the Engagement Quality Review, prior research has focused on describing EQR policies in the major accounting firms or the general EQR process that uses surveys or experiments (e.g., Emby & Favere‐Marchesi, 2010; Epps & Messier, 2007). Given that a particular criticism of some small firms is that they are either unwilling or unable to bring in qualified outside reviewers (Kraussman & Messier, 2015), one implication is that small audit firms must independently enhance their engagement review process in order to improve their audit practice.…”

External auditors' reliance on management's experts: The effects of an early‐stage conversation and past auditor–client relationship

“…A contentious approach adopted by a client during past negotiations results in auditors forming a negative perception about the client (Rennie, Kopp, & Lemon, 2010), thereby resulting in auditors taking a tougher stand (Pruitt & Carnevale, 1993). Further, a tougher stand during negotiation legitimises the professional role of auditors in the eyes of the client (Bame‐Aldred & Kida, 2007; Beattie, Fearnley, & Brandt, 2004; Beattie, Fearnley, & Hines, 2015), sets the tone for future negotiation (Emby & Favere‐Marchesi, 2010; Gibbins et al, 2001; Kleinman & Palmon, 2000) and prevents future exploitation by the counterparty (Roering, Slusher, & Schooler, 1975). However, when auditors perceive their bargaining power to be low due to a weak audit committee, ambiguous accounting standards or estimation uncertainties (Cannon & Bedard, 2017; DeZoort et al, 2003), auditors are found to contend less by adopting a more accommodating approach when negotiating with contending clients (Brown‐Liburd & Wright, 2011; Ng & Tan, 2003).…”