ISQM1: Raising the standard
Feb 08, 2023
ISQM1 has created a valuable opportunity for firms to embrace technology and data management for greater efficiency. Liam Mullane explains why
Like Christmas, the 15 December deadline for implementing the International Standard on Quality Management 1 (ISQM 1) has come and gone.
Now, you need to turn your attention to ensuring the System of Quality Management (SoQM) you have designed is operating effectively.
It’s also a good time to look back at all the controls you have designed as part of your ISQM1 implementation and identify any potential opportunities there may be to optimise these processes.
But first, let’s look at one of the significant changes introduced by ISQM1—your firm’s Risk Assessment Process (or RAP) for designing, implementing and operating your SoQM.
The RAP will potentially have led to a significant increase in the number of formal controls your firm needs to implement, monitor, and test.
This new requirement is also iterative, resulting in firms adjusting their SoQM for the new quality objectives and/or quality risks identified. This process gives rise to other opportunities to enhance your SoQM on a yearly basis, including “embracing technology” and “data management”.
Embracing technology
Most firms will have invested significantly in audit technology over the past decade with continued investment planned into the future.
If you haven’t done so already, however, now is the time to consider whether your firm has invested sufficiently in your internal quality control processes—key components of your SoQM.
Some firms may have a manual process for engagement budgets, for example, and a separate manual process for the assignment of resources to engagements.
There is a risk that these two manual processes may not be consistent in decisions made, and this could have a direct impact on audit quality.
This could, therefore, be the ideal opportunity to embrace technology and merge the two sub-processes into one work stream.
Automaton in itself should be a key consideration on a go forward basis. ISQM1 has resulted in most firms creating numerous formal controls across their practice.
If the controls and processes are manual in nature, there is a valuable opportunity for automation.
The benefits of automation include more consistent application and operation, less risk of error and manual input, efficiency and, ultimately, improved compliance.
Data management
ISQM1 has eight components and, as firms design and develop different controls to address the relevant quality objectives, a key input to a lot of these controls will be data.
Data can be a key input to different controls in various processes (i.e. there is an interplay across ISQM1). In order to ensure a coherent and efficient SoQM, this data should be consistent.
Accountants tend to love spreadsheets—but, like everything, there is a time and a place. Where possible, all data should be gathered in a data warehouse, which is checked for completeness and accuracy.
This is a key input to ensuring your SoQM operates appropriately across all components. As they say, “rubbish in, rubbish out”.
Last word
The operation of ISQM1 by 15 December 2022 has been a great achievement by all of the implementation teams across the various firms, but the work doesn’t stop there.
Your firm must now continue to develop your SoQM with the iterative process, using the opportunity to embrace new technology to make everyday tasks more efficient, while also considering your approach to data management.
ISQM1 is raising the standard for all—we must grasp the opportunity with both hands.
Liam Mullane is a Director with KPMG