Global consultation on standards for improving audit quality

The International Auditing and Assurance Standards Board (IAASB) has opened a global consultation on three interrelated standards to improve quality management, which will bring significant changes in how accountancy firms manage quality for audits, reviews, and other assurance and related services engagements

In December 2018, when the IAASB approved proposed revisions to the quality management standards for firms and audit engagement teams, the regulator said the changes are likely to require increased effort for most firms. They could also affect firms’ organisational structures and operations.

ISQM 1 (previously ISQC 1) addresses a firm’s responsibility to establish a system of quality management to support quality engagements.

ISQM 2 is a new proposed standard to address engagement quality reviews.

ISA 220 addresses the management of engagement quality for audit engagement.

The proposed standards include a new proactive risk-based approach to effective quality management systems within firms, which the IAASB says will provide the foundation for consistent engagement quality. The regulator says this approach improves the scalability of the standards because it promotes a system tailored to the nature and circumstances of the firm and its engagements.

The IAASB proposals include modernising the standards for an evolving and increasingly complex environment, including addressing the impact of technology, networks, and use of external service providers.

The standards increase the leadership responsibilities and accountability within a firm and improve its governance.  They require more rigorous monitoring of quality management systems and remediating deficiencies.

They also enhance the engagement partner’s responsibility for audit engagement leadership and audit quality.

In addition, IAASB says the standards will address the robustness of engagement quality reviews, including engagement selection, documentation, and performance.

Given the significance of the changes and the need for firms to adjust how they manage quality, the IAASB has also developed draft guidance and tools, such as examples and frequently asked questions. These materials will help firms understand the proposals, including how to apply them in different circumstances.

Comments on the exposure drafts are requested by 1 July.

Overall Explanatory Memorandum, The IAASB’s Exposure Drafts for Quality Management at the Firm and Engagement Level, Including Engagement Quality Reviews is here.

Proposed 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 (previously ISQC 1) is here.

Proposed International Standard on Quality Management 2, Engagement Quality Reviews is here.

Proposed International Standard on Auditing 220 (Revised), Quality Management for an Audit of Financial Statements is here.

Report by Pat Sweet

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