What is ISQM 1? Everything You Need to Know
What is ISQM 1? Well, as of December 2022 it’s a new international standard for quality management. Following a number of audit problems involving large scale companies, and the ever-changing nature of the financial industry, the standard aims to improve how audit firms approach audit quality.
ISQM 1 is set to be introduced alongside new standards in ISQM 2 and a revised ISA 220. Of the three standards, ISQM 1 is likely to have the most significant impact at a firm level. Let’s take a look at ISQM 1 and why it matters to your firm, together with an overall review of the new regulations.
● What does ISQM stand for?
● What does ISQM replace?
● Difference between ISQM 1 and ISQC 1
● When are ISQMs effective?
● What is ISQM 1: key takeaways
What does ISQM 1 stand for?
ISQM 1 stands for the ‘International Standard on Quality Management’. It’s a new set of specific rules for the likes of external auditors to adhere to when performing an audit or review of a company’s finances or other related services. ISQM 1 focuses on quality management at the firm level, whereas ISQM 2 addresses h engagement quality reviews.
What does ISQM replace?
The ISQM replaces the ISQC 1, or the International Standard for Quality Control. It has a wider scope than its predecessor, overseeing quality management at the firm level by taking a risk-based approach Moving from ISQC to ISQM may result in some upheaval for some firms, but also brings an opportunity to deliver new levels of value to their audit practice in the long-run.
Difference between ISQM 1 and ISQC 1
ISQM 1 brings regulations in line with modern-day approaches to business. The former model of quality control set procedures for all audit firms to comply with, whereas quality management looks at including risk. Any firm engaged to conduct audits under the ISAs (International Standards on Auditing) needs to comply with the new international quality management standards.
The ISQM 1 seeks to improve firm governance, and increase firm leadership and accountability. Also, every firm will identify different risks, so it is likely that under ISQM 1 audit firms will end up designing many more divergent systems of quality management than are seen under ISQC 1.
When are ISQMs effective?
The changes to the new international standards for quality management will come into effect at the end of the current calendar year – by 15th December 2022. The governing body of the IAASB approved the new standards in 2020, giving the likes of external auditors a cross-over period of nearly two years to absorb the new regulations. Read our article to discover ‘why do we need new quality control standards?’
What is ISQM 1: key takeaways
The new international standards for quality management are a completely new approach to audit quality. Here are some key findings to be aware of prior to the introduction of the changes in December 2022:
● The new standard makes firms responsible for introducing a quality management system for the performance of audits or reviews of financial statements. Far from merely adding to the workload of audit firms, the standard seeks to improve quality across the board. Complying with the ISQM should result in a greater quality of service, meaning firms are more competitive within their market and offer better value for money.
Improvements in quality management should be felt at all levels of an organization, improving company culture as a whole. There may be some initial disruption for firms and those working in the auditing profession, but subsequent years should make for a cleaner and more consistent process for everyone involved.
No matter what stage your business is at when it comes to complying with the ISQM, Inflo software can save you time, money, and audit-era headaches.
Utilizing digital technology, Inflo can provide your company with clearly mapped-out insights, quality objectives, risk assessment documentation and real-time monitoring.
Contact us today for an entirely new approach to quality management.