How IAASB’s New Quality Management Standards Affect Your Accounting Firm: A Closer Look at ISQM 1
As discussed recently, the International Auditing and Assurance Standards Board (IAASB) approved new quality management standards (ISQM 1) in an effort to modernize the organization’s previous focus on quality control standards. As these changes take effect on December 15, 2022, this article takes a closer look at the first of these three new standards in greater detail and highlights how accounting firms can begin preparing today.
Understanding What ISQM 1 Means For Your Firm
ISQM 1 addresses the firm’s responsibilities to design, implement, and operate quality management systems for audits or reviews of financial statements and other assurance or related services engagements. Critically, ISQM 1 addresses risks at the firm level with respect to audit engagements; each accounting firm performing engagements subject to IAASB standards is responsible for designing, implementing, and monitoring its own system of quality management (SOQM) — even if the firm is part of a network. Although each firm may be in a different phase of its quality management journey, every firm will be required to establish, prior to December 2022, updated risk management processes relating to their audit and assurance engagements that address eight components of ISQM 1:
- Firm’s risk assessment process: The method your firm must follow in implementing a risk-based approach to quality management
- Governance and leadership: Your firm’s culture, leadership responsibility, accountability, and commitment to a robust SOQM
- Relevant ethical requirements: Understanding and fulfilling the relevant ethical requirements for your firm and its engagements, primarily driven by the IESBA Code of Ethics
- Acceptance and continuance of client relationships and specific engagements: Your firm’s judgments about whether to accept or continue a client relationship or specific engagement
- Engagement performance: Your firm’s actions to promote and support the consistent performance of quality engagements
- Resources: Procurement and allocation to enable the timely design, implementation, and operation of the SOQM
- Information and communication: Obtaining, generating, or using information regarding the SOQM, and communicating information within the firm and to external parties on a timely basis to enable the design, implementation, and operation of the SOQM
- Monitoring and remediation: A process providing your firm with relevant, reliable, and timely information about the design, implementation, and operation of the SOQM, and how you’ll take appropriate actions to respond to deficiencies and promptly remediate them
Addressing ISQM 1 With Technology
Although technology isn’t a magical solution to every requirement of this new quality management standard, technology can be highly beneficial and even necessary at times. Let’s look at how technology can address each item.
- Firm’s risk assessment process: Although your firm must establish the objectives for the SOQM, a risk-centric integration solution with monitoring capabilities can kick off the right workflows when firm-defined risk events are triggered.
- Governance and leadership: Risk management software purpose-built for accounting firms can help firms confidently and quickly affirm when they’ve met independence procedures and requirements, and when monitoring and remediation processes for the SOQM are operating as intended.
- Relevant ethical requirements: With respect to international independence requirements, the IAASB specifically mentions a network-developed independence solution risks the possibility of not appropriately accounting for each member firm’s jurisdictional ethical requirements. The right independence solution should address your firm’s need to monitor for independence while also considering your firm’s jurisdictional needs. The solution should also centralize all documentation related to various ethical requirements, including those for the network and for each firm’s particular geography.
- Acceptance and continuance of client relationships and specific engagements: The IAASB has greatly enhanced requirements for a firm’s acceptance and continuance process. Technology can help your firm in several areas, including retrieving the right data at the right time, integrating relevant internal and external systems, monitoring client and engagement status and risk thresholds throughout the engagement lifecycle, and demonstrating a formalized trail of consideration and risk conclusion.
- Engagement performance: Your firm must maintain a technology system that helps determine if it has appropriate resources to perform a new engagement, and whether the firm has the time to undertake the engagement given the firm’s other commitments.
- Resources: Your firm’s chosen technology solution must be “appropriate.” The IAASB gives guidelines throughout ISQM 1 as to how it defines “appropriate” — this article incorporates much of this guidance.
- Information and communication: Workplace collaboration technology — such as Microsoft Teams — can assist with the requirement calling for a system that contains processes to identify, capture, process, and maintain information. Software that integrates Microsoft 365 data with your other systems of record is especially helpful here.
- Monitoring and remediation: Your technology solution should be able to generate alerts when users violate policies or procedures, and self-monitor to allow for quicker identification of deficiencies within the SOQM.
Taking Action to Prepare For ISQM 1
The IAASB has set a deadline of December 15, 2022, for firms to design, implement, and deploy their SOQM. In our experience with more than 1,600 professional services firms, we know that researching, selecting, purchasing, implementing, and adopting a new technology solution across a firm can be lengthy and time-consuming. Therefore, it’s imperative that firms start thinking now about how they will respond to evolving requirements, and understand how the right technology service provider can assist them in their journey.
When considering technology service providers to help you meet challenges presented by new quality management standards, it’s essential to consider each vendor’s familiarity with the unique needs of accounting firms. Intapp serves more than 1,600 professional and financial services firms with purpose-built technology that helps these firms connect their people, processes, and data.
Accounting firms can directly address many of ISQM 1 components by leveraging Intapp solutions, which have been purpose-built for the needs of accountancies. A firm can retrieve all relevant internal and external data and ensure decision-making remains in line with quality objectives while automatically creating audit workspaces that contain all relevant policies and procedures pertaining to each client and engagement. The Intapp platform also provides underlying capabilities that power highly configurable workflows, deep and native integrations with third-party data, and ongoing monitoring — all of which contribute to a robust system of quality management to help your firm achieve its quality objectives.
- Why Accurate Time Tracking for Accountants Is Crucial for Creating Growth
- The Future of Accounting: Working In a Connected Firm
- Manage AML and CDD with OnePlace Risk & Compliance
- 5 Ways Purpose-Built Software Can Accelerate Your Accounting Firm’s Client Acceptance
- Win Business and Grow Your Firm with Cloud-Based Solutions