Quality management standards
In December 2022 the international standards on quality management come into effect: International Standard on Quality Management 1 (ISQM 1), International Standard on Quality Management 2 (ISQM 2) and International Standard on Auditing 220 (revised) (ISA 220 (revised))
These three standards introduce a new quality management approach which is a risk-based approach. Rather than simply setting control procedures that the firm must follow the new standards require the firm to design, implement and operate a system of quality management (SoQM) for audits or reviews of financial statements or other assurance or related services engagements. These new standards apply to all audit firms.
The key requirement of ISQM 1 include:
- A risk management process
- An emphasis on quality management
- References to automation such as data analytics and audit software
- References to service providers including audit methodology providers
- Monitoring and remediation including root cause analysis
- Documentation
ISQM 2 extends the requirements for Engagement Quality Reviews which will apply to audits of listed entities, public interest entities, where the firm determines that it is required and where it is required by law or regulation.
ISA 220 (Revised) applies to audits of financial statements and addresses how quality is managed at the audit engagement level by the engagement partner.
The local versions of the international standards were issued in July 2021 by the FRC and in December 2021 by IAASA.
A Technical Alert (TA) has been published to help members understand and apply these new standards and to direct members to additional sources of information and guidance on their implementation.
Further guidance and links to useful resources can be found on this webpage Quality Management Key Requirements.
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