Quality Management -key requirements and further guidance

System of Quality Management

The approach under the new quality management standards requires a firm to customise the design, implementation and operation of its system of quality management (SoQM) based on the nature and circumstances of the firm and the engagements it performs. It also requires firms to transition to an integrated approach that reflects upon the system of quality management as a whole, rather than individual elements.

The objectives of the SoQM is to support the consistent performance of quality engagements by providing the member firm with reasonable assurance that:

• the firm and its personnel fulfil their responsibilities in accordance with professional standards and applicable legal and regulatory requirements, and conduct engagements in accordance with such standards and requirements; and

• engagement reports issued by the firm or engagement partners are appropriate in the circumstances”.

It is intended that the operation of the system as a whole provides reasonable assurance that the objectives of the SoQM are being achieved.

ISQM1 sets the requirement to establish policies or procedures addressing engagements that are required to be subject to engagement quality reviews, ISQM 2 addresses the appointment and eligibility of the engagement quality reviewer and their responsibilities relating to the performance and documentation of an engagement quality review.  There are also revised requirements relating to quality management at the engagement level and these are covered in ISA 220 (Revised).

Further guidance on the standards and their implementation can be found on the IAASB website below. The standards can be downloaded here.  

The steps to support this new approach need to be in place by 15 December 2022

IAASA

IAASA have published a series of videos designed to provide information on the Quality Management Standards in Ireland.

The full series is available here.

To accompany the video series, IAASA has published a factsheet for each Quality Management Standard available here.

The first video provides an overview of the Quality Management Standards and the relationship between ISQM 1, ISQM 2 and ISA 220

The second video provides an overview of International Standard on Quality Management 1- Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements.

The third video provides an overview of the eight components of a system of quality management as set out in International Standard on Quality Management 1- Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements.

The fourth video provides an overview of International Standard on Quality Management 2 – Engagement Quality Reviews.

Further videos will be published on IAASA's YouTube Channel.

Webinars 

The IAASB has issued a wealth of guidance material for auditors. Including a series of webinars and a number of first-time implementations guides.

The webinar series cover each of the revised standards and the links between them:

• Webinar One: ISQM1 All You Need to Know about the Firm’s Risk Assessment Process.  The move to a new risk focussed quality management approach.
• Webinar Two: ISQM1 Resources: Expectations for Firms and Engagement Partners. The components in ISQM1 and the resources needed to implement it. 
• Webinar Three: ISQM 1 What’s New for Firms’ Monitoring and Remediation Processes. How the firm's systems can be designed to work more proactively. 
• Webinar Four: Bringing it All Together: Exploring all the Components of a Quality Management System including the governance and leadership aspects needed. 

Each webinar is about an hour long and has a slide deck to accompany it.

Implementation guides from IAASB

The IAASB implementation guide for each of the revised standards is linked below.  Accountants need to be aware of the links between the three standards which is also discussed in the webinars above.  These guides can be downloaded for free from the IAASB website.

ISQM1

ISQM 1 deals with the firm’s responsibility for having a system of quality management (SOQM). The SOQM is the mechanism that creates an environment that enables and supports engagement teams in performing quality engagements. It helps the firm in achieving consistent engagement quality because it is focused on how the firm manages the quality of engagements performed. This standard replaces the existing standard ISQC 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements and Other Assurance and Related Services Engagements, this first time implementation guide highlights the key changes and explains how it may affect the whole firm. 

  

ISQM2

ISQM 2 addresses: (a) The appointment and eligibility of the engagement quality reviewer; and (b) The engagement quality reviewer’s responsibilities relating to the performance and documentation of an engagement quality review. 

ISQM 2 is designed to operate as part of the firm’s system of quality management, and therefore the requirements in ISQM 1 and ISQM 2 are organized in a manner that provide appropriate linkages between the standards.  ISQM 1 addresses the scope of engagements subject to an engagement quality review; and ISQM 2 addresses the specific requirements for the appointment and eligibility of the engagement quality reviewer and the performance and documentation of the review. The implementation guide illustrates the linkages between the quality management standards. 

ISA 220 (REVISED)

ISA 220 (Revised) focuses on quality management at the audit engagement level and requires the audit engagement partner to actively manage and take responsibility for the achievement of quality, especially through sufficient and appropriate involvement throughout the engagement and adherence to the firm’s policies or procedures and the requirements of ISA 220 (Revised). This standard applies to audits of financial statements. The links between ISA 220 (Revised) and the other quality management standards are addressed in this implementation guide. 

These guides were prepared by the Staff of the International Auditing and Assurance Standards Board (IAASB) and their objective is to help understand and apply revised standards. They do not constitute an authoritative pronouncement of the IAASB, nor amend or override the standards the text of which alone is authoritative.

Other sources of information

This article in Accountancy Ireland April 2022 gives helpful insight in the new quality management standards and how it represent a fundamental shift in focus for auditors.

Chartered Accountants Ireland can accept no responsibility for the content on any site that is linked to from the Institute website. Links are provided in good faith for the potential support of members and students.