ASQM 2 Engagement Quality Reviews in Australia 2026: What Businesses Must Know When Choosing an Auditor

For Australian businesses that rely on audited financial statements — whether for investor confidence, regulatory compliance, or lender requirements — the quality of the audit engagement matters enormously. Behind every high-quality audit is a rigorous internal review process, and in Australia, that process is now governed by ASQM 2 Engagement Quality Reviews. Understanding what this standard requires, and how it affects the auditors you engage, is essential knowledge for any board, audit committee, or finance leader in 2026.

Understanding ASQM 2 and Engagement Quality Reviews

ASQM 2 is an Australian auditing standard issued by the Auditing and Assurance Standards Board (AUASB) that governs the conduct of engagement quality reviews (EQRs). It aligns with the international standard ISQM 2, ensuring that Australian audit quality frameworks remain consistent with global best practice.

An engagement quality review is an independent, objective evaluation of the significant judgments made by an audit engagement team — and the conclusions they reached — before the auditor's report is issued. It is not a full re-performance of the audit, but rather a focused assessment of the most consequential decisions: going concern assessments, significant estimates, complex accounting treatments, and key audit matters.

ASQM 2 became effective for audits of financial reports for periods beginning on or after 15 December 2022. A significant update was approved on 28 January 2025, expanding the standard's application to include assurance over sustainability reports under the Corporations Act 2001 — a critical development given Australia's mandatory climate reporting obligations that commenced in 2025. The updated provisions apply to financial reporting periods beginning on or after 1 January 2025.

Who Must Conduct an Engagement Quality Review?

Not every audit engagement requires an EQR. Under ASQM 1 — the companion standard governing a firm's overall quality management system — audit firms must design their quality management systems to identify which engagements require an EQR as a specified response to quality risks.

In practice, EQRs are typically required for:

• Listed entity audits — All audits of entities listed on the ASX or other recognised exchanges require an EQR under ASQM 1.
• High-risk engagements — Where the firm's risk assessment identifies elevated quality risks, such as complex financial instruments, significant estimates, or going concern uncertainty.
• Sustainability assurance engagements — Following the January 2025 amendments, EQRs now extend to assurance engagements over sustainability reports under the Corporations Act.
• Firm-designated engagements — Firms may designate additional engagement types for EQR based on their own quality risk assessments.

For businesses engaging an auditor, understanding whether your audit will be subject to an EQR — and who will conduct it — is a meaningful indicator of the quality controls your auditor has in place.

Key Requirements for Engagement Quality Reviewers

ASQM 2 sets strict eligibility criteria for the individuals appointed to conduct EQRs. These requirements exist to ensure the review is genuinely independent and adds real value to the audit process.

• Independence from the engagement team — The engagement quality reviewer must not be a member of the engagement team. This is a non-negotiable requirement designed to prevent the reviewer from evaluating their own work.
• Competence and capability — The reviewer must possess the technical knowledge, industry expertise, and professional experience necessary to evaluate the significant judgments made in the engagement. For complex audits, this may require specialist knowledge in areas such as financial instruments, actuarial estimates, or sustainability reporting.
• Sufficient time — The reviewer must have adequate time to perform a thorough review before the auditor's report is issued. Rushed EQRs that are conducted as a formality rather than a genuine quality check are a red flag.
• Ethical compliance — The reviewer must comply with all relevant ethical requirements, including independence obligations under APES 110 Code of Ethics for Professional Accountants.

Firms are required to establish policies that assign responsibility for appointing engagement quality reviewers to individuals with appropriate authority — ensuring that commercial pressures do not compromise the independence of the selection process.

Common Weaknesses in Engagement Quality Review Processes

ASIC's audit quality surveillance program has consistently identified weaknesses in how some firms conduct EQRs. Businesses and audit committees should be alert to the following red flags when evaluating their auditor's quality management practices.

• Superficial reviews — EQRs that focus on documentation completeness rather than the substance of significant judgments provide little assurance. A genuine EQR should challenge the engagement team's conclusions, not simply confirm that workpapers are in order.
• Insufficient reviewer expertise — Appointing a reviewer who lacks the technical knowledge to evaluate complex estimates or industry-specific accounting treatments undermines the purpose of the review.
• Late-stage reviews — EQRs conducted after the auditor's report has been substantially finalised — rather than before significant judgments are locked in — reduce the reviewer's ability to influence outcomes.
• Inadequate documentation — ASQM 2 requires that the EQR process be documented, including the reviewer's evaluation of significant judgments and the basis for their conclusions. Thin documentation suggests a cursory review.
• Independence breaches — Any situation where the engagement quality reviewer has a prior relationship with the engagement team, or where the reviewer's appointment is influenced by the engagement partner, compromises the independence that ASQM 2 is designed to protect.

Australian Regulatory Context

ASQM 2 sits within a broader Australian audit quality framework that businesses should understand when selecting and evaluating their auditors.

The Auditing and Assurance Standards Board (AUASB) is the Australian government agency responsible for developing and maintaining auditing and assurance standards. AUASB standards, including ASQM 2, are legally enforceable under the Corporations Act 2001 for audits of companies and registered schemes.

ASIC performs the oversight and enforcement functions for audit quality in Australia, conducting regular inspections of audit firms and publishing findings on audit quality. ASIC's 2026–27 financial reporting and audit focus areas include going concern assessments, significant estimates, and the quality of key audit matter disclosures — all areas where EQRs play a critical role.

The Accounting Professional and Ethical Standards Board (APESB) issues APES 110, which governs the ethical obligations of auditors including independence requirements that directly affect EQR eligibility. The January 2025 amendments to ASQM 2 updated the definitions of "relevant ethical requirements" to incorporate references to ASSA 5000 for sustainability assurance engagements, reflecting the growing importance of non-financial assurance in the Australian regulatory landscape.

For SMSF auditors, the Australian Taxation Office (ATO) maintains a separate registration and oversight regime. SMSF auditors must be registered with ASIC as Registered Company Auditors and comply with independence requirements under both APES 110 and the Superannuation Industry (Supervision) Act 1993.

Questions to Ask Your Auditor About Engagement Quality Reviews

Audit committees and boards should proactively engage with their auditors on EQR processes. The following questions will help you assess whether your auditor's quality management practices meet the standard ASQM 2 requires.

• Is our audit subject to an engagement quality review? — If yes, understand the basis for that determination. If no, ask why not and whether the firm's risk assessment supports that conclusion.
• Who will conduct the EQR, and what are their qualifications? — Confirm the reviewer's independence from the engagement team and their relevant technical expertise.
• At what stage of the audit will the EQR be conducted? — The review should occur before the auditor's report is issued, with sufficient time for the reviewer to evaluate significant judgments and for the engagement team to respond to any concerns raised.
• What significant judgments will the EQR focus on? — For your specific engagement, identify the areas of greatest complexity or estimation uncertainty and confirm these will be subject to EQR scrutiny.
• How does the firm document the EQR process? — Ask to understand the documentation standards the firm applies and how EQR findings are recorded and resolved.
• Has ASIC identified any EQR-related findings in inspections of this firm? — ASIC publishes inspection findings for major audit firms. Review these for any concerns about EQR quality.

How MyMoney® Can Help

Selecting an auditor whose quality management practices genuinely meet the requirements of ASQM 2 — and whose engagement quality review processes provide real assurance rather than a compliance formality — requires informed evaluation. The right auditor will be transparent about their EQR processes, proactive in discussing significant judgments with your audit committee, and committed to the independence that underpins audit quality.

MyMoney® connects Australian businesses with qualified, ASIC-registered auditors who understand the full scope of their obligations under ASQM 2 and the broader Australian audit quality framework. Whether you need a statutory audit, an SMSF audit, or sustainability assurance, our marketplace makes it straightforward to find and compare auditors with the right credentials and experience.

Post a Brief to outline your audit requirements and receive proposals from vetted auditors. Or Browse Auditors to explore professionals with the specific expertise your engagement demands.