Following a series of high-profile auditing failures, the International Auditing and Assurance Standards Board (IAASB) has published its International Standard on Quality Management 1 (ISQM 1), which has significant implications if you carry out audit or assurance engagements.
The measures set out in ISQM 1 come into effect on 15 December 2022.
What is ISQM 1?
ISQM 1 replaces the International Standard on Quality Control 1 (ISQC 1), which has been in effect since December 2009.
It sets out requirements for audit firms to “design, implement and operate a system of quality management for audits or reviews of financial statement, or other assurance or related services engagements”.
What are the key requirements of ISQM 1?
The key requirement of ISQM 1 is for audit firms to implement a system of quality management comprising the following eight components:
- The firm’s risk assessment process;
- Governance and leadership;
- Relevant Ethical Requirements;
- Acceptance and continuation of client relationships and specific engagements;
- Engagement and performance;
- Information and communication; and
- The monitoring and remediation process.
Crucially, the system must be designed around a risk-based approach.
What does the risk-based approach required by ISQM 1 look like?
The IAASB says that systems need to be “interconnected and coordinated” and that the quality management of engagements by firms must be “proactively” managed.
Additionally, it says that firms must determine:
- Quality objectives
- Risks to the achievement of these objectives
- Responses to address the quality risks.
Is ISQM 1 a one-size-fits-all requirement for firms and engagements of all sizes?
No. Quality management systems should be “scalable” so they appropriate to both the size and operations of the firm and of the engagement.
In general, the largest firms carrying out the largest and most complex engagements, such as those of listed companies, should have the most detailed and formalised processes in place.
How will ISQM 1 be monitored?
Firms will be required to review and document the effectiveness of their systems of quality management in achieving their quality objectives.
How can MyWorkpapers help my firm get ready for ISQM 1?
We have new features in the pipeline that will enable MyWorkpapers to play a part in your firm’s system of quality management.
Watch this space for more details!