In a previous post, A significant Step Change in IAASB Quality Management Standards, we discussed the new quality management standards and how they will impact how audit firms approach audit quality in the future, moving from a policy-based approach to a risk -based approach. In this article we will take a deeper dive in to what the standards and how firms can look to implement them.The new quality management standards consist of three separate standards which firms must implement, as follows:
This replaces ISQC 1 and addresses firm level quality management, with a focus on the design, implementation, and monitoring of a quality management system.This requires that a system of quality management address the following eight components:
A new standard addressing engagement quality reviews and the role of the engagement quality reviewer.It aggregates and extends requirements previously included within other standards and covers topics such as:
An update that supersedes ISA 220 (AU-C 220 in US, ASA 220 in Australia) and addresses quality management at the engagement level, focusing on the quality responsibilities of the engagement team and engagement partner.
These new standards will require firms to transition from a policies-and-procedures approach to an integrated-and-iterative approach, encompassing the quality management system as a whole.
Following the approval of the new quality management standards by the IAASB in December 2020, the effective date for engagements regarding financial statements is described as beginning on or after December 15th, 2022. Therefore, the new standards must be designed and ready to operate by the end of the 2022 calendar year, per the international timeline.Most territories will implement the international standards unamended and in line with the international timeline, though firms will need to consider any additional guidance from local professional bodies.The standards are being adopted as follows in selected major markets:
UK – December 2022
Australia – December 2022
US – December 2025
To learn more about the new quality management standards check out our full explanatory guide, or understand how technology can help your firm implement a new system of quality management in line with the ISQM standards