Tips for implementing international standards on quality management
James Barbour CA highlights some useful resources to assist audit firms in implementing the quality management standards
In September 2020, the International Auditing and Assurance Standards Board (IAASB) strengthened an audit firm’s approach to quality management with the issue of three new and revised quality management standards.
In July 2021, the Financial Reporting Council (FRC), published the revised quality management standards applicable in the UK following a consultation on the adoption of the IAASB revised standards, with a small number of additional requirements and guidance to address specific UK legal and regulatory requirements.
International Standard on Quality Management (UK) 1 (ISQM (UK) 1) and International Standard on Quality Management (UK) 2 (ISQM (UK) 2) will replace the current International Standard on Quality Control (UK) 1 (ISQC (UK) 1) for audits of financial statements for periods beginning on or after 15 December 2022. International Standard on Auditing (UK) 220 (Revised July 2021), (ISA (UK) 220), Quality Management for an Audit of Financial Statements, also becomes effective from that date.
About the new quality management standards
ISQM (UK) 1 - Quality Management For Firms That Perform Audits Or Reviews Of Financial Statements, Or Other Assurance Or Related Services Engagements
ISQM (UK) 1 introduces a new risk-based approach to quality management at the firm level that is scalable to deal with differences in the size of firms and nature of the services they provide. It requires the firm to design and implement a risk assessment process that sets quality objectives; identifies and assesses quality risks; and implements responses to address those quality risks.
ISQM (UK) 2 - Engagement Quality Reviews
ISQM (UK) 2 is a new standard which contains the detailed requirements and related application material for engagement quality reviews that were previously located in ISA (UK) 220. It enhances the existing criteria around the appointment and eligibility of an engagement quality reviewer and their related responsibilities.
ISA (UK) 220 (Revised July 2021) - Quality Management for an Audit of Financial Statements
ISA 220 was significantly revised by the IAASB, relocating the requirements relating to engagement quality reviews, resulting in a clear delineation of the responsibilities of the engagement partner and engagement team in relation to managing and achieving quality at the engagement level. There is also increased focus on taking into account the nature and circumstances of the audit engagement in managing quality at the engagement level.
Links to the new and revised UK quality management standards
Conforming amendments to other ISAs and related materials (as introduced by the IAASB)
The IAASB has created a suite of resources and material to support audit firms in the transition to the new quality management approach.
First time implementation Guide - ISQM 1
First time Implementation Guide - ISQM 2
First time Implementation Guide - ISA 220 (revised)
Quality management Webinar series
The firm is required to have the system of quality management (SOQM) designed and implemented in compliance with ISQM 1 by 15 December 2022. The evaluation of the SOQM required by paragraphs 53–54 of ISQM 1 is required to be performed within one year of that date. This means that by 15 December 2022, the firm is expected to:
(a) Establish the quality objectives, identify and assess the quality risks and design and implement the responses; and
(b) Design and implement the monitoring activities.
The operation of the responses and monitoring activities is only required to commence from 15 December 2022 onwards.