AS 1110: Quality Control for Audit Engagements

Auditing Standard 1110 (AS 1110) is a standard from the Public Company Accounting Oversight Board (PCAOB) that governs quality control for audit engagements. The standard is set to be rescinded on December 15, 2025, and replaced by a new quality control standard, QC 1000, A Firm’s System of Quality Control.

Until its replacement, AS 1110 defines the relationship between the standards for individual audits and the quality control systems governing a firm’s entire practice. While auditing standards dictate how a specific audit is performed, quality control standards relate to the firm’s overall systems. The standard mandates that a firm’s quality control system must provide reasonable assurance that its personnel comply with PCAOB standards on every audit.

The Firm’s System of Quality Control

AS 1110 requires every registered accounting firm to establish and maintain a comprehensive system of quality control. The design of this system can depend on the firm’s size, structure, and the nature of its practice. The objective is to ensure that the firm and its personnel adhere to professional standards and regulatory requirements, leading to audit reports that are appropriate for the circumstances.

A component is the responsibility of the firm’s leadership to foster a culture of quality. This concept, often called the “tone at the top,” involves promoting a commitment to integrity and ethical principles. Leadership must ensure that commercial considerations do not override the quality of the work performed and must communicate the importance of quality control to all personnel.

The firm’s system must also include policies for accepting and continuing client relationships. This involves evaluating a potential client’s management and assessing whether the firm has the necessary competence and resources to perform the engagement. The firm must also have procedures for human resources, covering the hiring, development, and assignment of personnel to ensure that audit teams are staffed with individuals who have the appropriate technical training.

Finally, the system must address relevant ethical requirements, focusing on independence. The firm must implement policies to provide reasonable assurance that personnel maintain independence in fact and appearance. This includes processes for identifying and resolving any potential conflicts of interest that could impair the firm’s objectivity.

Responsibilities on an Individual Audit Engagement

While the firm is responsible for the overall system of quality control, AS 1110 places direct responsibility on the engagement partner for the quality of each individual audit. This partner is tasked with ensuring that the specific engagement is conducted in compliance with all applicable PCAOB standards. This involves translating the firm’s broad quality control policies into concrete actions at the engagement level.

A primary duty for the engagement partner is the supervision of the audit team members. This includes providing direction to the audit staff, staying informed of significant accounting and auditing issues, and reviewing the work performed by the team. The extent of supervision depends on the complexity of the engagement and the experience of the personnel involved. Proper supervision ensures the audit is performed with due professional care.

The review process is a formal part of this supervision. Work performed by less experienced team members must be reviewed by more experienced members of the team. This review process helps identify potential errors in the audit work before the report is issued. It ensures that the work performed supports the conclusions reached and that the audit documentation is complete.

Ultimately, the engagement team is responsible for implementing the firm’s quality control procedures on their specific audit. A deficiency in the firm’s overall system does not excuse a failure in performance on a specific audit, nor does a failure on one audit automatically mean the entire system is deficient.

Process for Resolving Differences of Opinion

Disagreements can arise among the engagement team members or between the team and consultants. These “differences of opinion” might relate to the application of accounting principles, the scope of audit procedures, or the final wording of the audit report. AS 1110 requires firms to have established procedures for resolving such disputes to ensure that conclusions are well-supported and documented.

The process requires consultation among the involved parties to reach a resolution. The firm’s policies should encourage team members to voice their concerns and provide a clear path for escalating the issue if a consensus cannot be reached. This might involve bringing in other partners or technical experts within the firm who are not directly associated with the engagement.

The firm must have policies that require the documentation of the differing opinions, the steps taken to resolve the disagreement, and the basis for the final conclusion. This documentation becomes part of the official audit file.

The standard also protects the integrity of the individuals involved. Team members who disagree with the final resolution have the right to document their disagreement and to formally disassociate themselves from the decision. The audit report should not be issued until the matter is resolved according to the firm’s policies.

The Engagement Quality Review Function

A component of quality control for many public company audits is the Engagement Quality Review (EQR). This is an objective evaluation of the significant judgments made by the engagement team and the conclusions they reached in forming the overall audit opinion. The EQR is performed by an experienced partner, or an individual in an equivalent position, who is not otherwise associated with the engagement to ensure objectivity.

The engagement quality reviewer must evaluate the significant judgments related to planning and performing the audit, including the assessment of risks and the response to those risks. The reviewer also examines the firm’s independence in relation to the engagement and discusses significant matters with the engagement partner. This includes reviewing the financial statements, the management report on internal control, and the final audit report.

To be qualified as an engagement quality reviewer, an individual must possess the technical expertise and experience to evaluate the audit. They must also be a partner of the firm or another appropriately qualified individual. The firm’s policies must ensure that the reviewer is provided with all relevant audit documentation and has access to the engagement team.

The firm is prohibited from giving the client permission to use the audit report until the engagement quality reviewer has provided their concurring approval of issuance. This means the reviewer holds the authority to prevent the release of the audit report if they are not satisfied that the audit was conducted in accordance with PCAOB standards.