Understanding ISQM and ISA Quality Management Standards
The International Auditing and Assurance Standards Board (IAASB) recently approved new quality management standards in an effort to modernize the organization’s previous focus on quality control rather than quality management. As you learn more about the new aspects of these standards, you should consider what they mean to your firm and how you’ll approach them in the coming months.
The new standards on quality management include three new, interrelated standards:
- Addresses quality management at the firm level
- Applies to all firms who perform engagements under the IAASB’s standards
- Speaks to firms’ acceptance/continuance and risk assessment processes
- Replaces IAASB’s International Standard on Quality Control 1 (ISQC 1), which focused on quality control
- Addresses engagement quality reviews and the role of the engagement quality reviewer
- Incorporates standards from ISQC 1 and ISA 220
- Addresses quality management at the engagement level
- Applies to audits of financial statements
- Builds on ISQM 1 as it deals with how the firm’s engagement partner leverages the system the firm creates in response to ISQM 1
Key Takeaways from the New IAASB Quality Control Standards
The new and revised standards are meant to renew pressure on firm leadership to proactively manage quality of the firm’s risk management processes and infuse the firm with a culture focused on rigorous quality management systems (“tone at the top”). The standards also place responsibility on networks’ member firms to design and implement their own systems of quality management rather than placing undue reliance on the network for direction.
Firms will also be required to transition from a policies-and-procedures approach that addresses standalone elements to an integrated and iterative approach that accounts for the risk management system as a whole. The IAASB has also placed an increased emphasis on a continual flow of remediation and improvement. Importantly, with this new iteration the IAASB has addressed challenges that smaller firms had faced when implementing the previous standards.
When Do the New Standards Take Effect?
Now is a good time to think about your firm’s strategy for responding to these new standards. IAASB approved and publicly released the new quality management standards in 2020, and they will become effective on December 15, 2022; at that time, each firm’s systems must already be designed, implemented, and ready to operate.
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