In December 2018, the IAASB approved proposed revisions to the quality management standards, for firms and audit engagement teams. The revisions will change how firms manage quality, and will likely require increased effort for most firms. They could also affect firms’ organizational structures and operations. The revisions will also require greater leadership by engagement partners in managing and achieving quality engagements.
How can I find out what is changing?
- A covering explanatory memorandum provides background on each proposed standard and the possible effective dates.
- ISQM 1 (previously ISQC 1) addresses a firm’s responsibility to establish a system of quality management to support quality engagements.
- ISQM 2 is a new proposed standard to address engagement quality reviews.
- ISA 220 addresses the management of engagement quality for audit engagements.
- A new proactive risk-based approach to firms’ systems of quality management in ISQM 1
- Modernizing the standards for an evolving and increasingly complex environment, including addressing the impact of technology, networks, and use of external service providers
- Increasing firm leadership responsibilities and accountability, and improving firm governance
- More rigorous monitoring of quality management systems and remediation of deficiencies
- Enhancing the engagement partner’s responsibility for audit engagement leadership and audit quality
- Addressing the robustness of engagement quality reviews, including engagement selection, documentation, and performance
Why is quality management being addressed?
- To more proactively manage quality to address stakeholder expectations and concerns
- To improve the scalability of the standards
- To modernize the standards, and keep them fit for purpose
How is scalability being improved?
- ISQM 1’s new risk-based approach involves more professional judgment in designing a system that is tailored to the nature and circumstances of the firm and the engagements it performs
- Increased professional judgment in selecting engagements for engagement quality reviews
- Greater focus in ISA 220 (Revised) on the nature and circumstances of the audit engagement in managing quality
For additional information and guidance, please see this draft practical example to learn more about how ISQM 1 could be applied by firms with different circumstances.
Draft frequently asked questions may also be helpful to understanding more about ISQM 1.