Introduction
In September 2020, the International Standards on Quality Management approved the ISQM 1, ISQM 2 and the International Standard on Auditing (ISA 220 Revised). The new standards are a response to a series of high-profile audit failures, to the changing environment, the challenges of the effectiveness of our pre-existing quality control standards, and growing market participant needs. It will result in a set of standards that are aimed at a more robust System of Quality Management for firms.
ISQM 1
This standard strengthens firms’ systems of quality management through a robust, proactive and effective approach to quality management. It encourages firms to design a system of quality management that is tailored to the nature and circumstances of the firm and engagements it performs. It replaces the ISQC1 which was focused on quality control.
Firms are required to have systems of quality management designed and implemented in accordance with ISQM 1 by December 15, 2022.
The relevant standard and implementation guidance can be found in this link.
ISQM 2
This standard deals with the appointment and eligibility of the engagement quality reviewer, and the engagement quality reviewer’s responsibilities relating to the performance and documentation of an engagement quality review. This is NEW standard, but many elements have been relocated from other standards such as ISQC1 and ISA 220.
ISQM 2 is effective for audits, reviews of financial statements and other assurance and related services engagements beginning for periods beginning on or after December 15, 2022.
The relevant standard and implementation guidance can be found in this link.
ISA 220 (Revised)
This standard deals with the engagement partner and engagement team’s responsibilities for quality management for an audit of financial statements. The revised standard modernizes the approach to quality management and requires the engagement partner and engagement team to be proactive in managing and achieving quality.
ISA 220 (Revised) is effective for audits of financial statements for periods beginning on or after December 15, 2022.
The relevant standard and implementation guidance can be found in this link.
The new standards have been designed for use by firms of all sizes.
Applicability of the new quality management standards
ISQM 1 applies to those firms who perform engagements under the IAASP standards including those who perform audits or reviews of financial statements and firms who have other assurance engagements, compilations or agreed-upon procedures. ISQM 2 applies to all engagements for which an engagement quality review is required to be performed in accordance with ISQM 1. The ISA 220 (Revised) is premised on the basis that the firm is subject to the ISQMs or to national requirements that are at least as demanding.
Additional guidance
IAASB has released a non-authoritative First-time Implementation Guide to help stakeholders understand the requirements of the International Standard on Quality Management (ISQM) 1, it is expected that more guidance documents will be released as we get closer to the implementation date.
We remain at your disposal for any further clarifications may be needed.
