As well as carrying out our regular audits over the last few months we have also been busy behind the scenes updating our system of quality management for audits and similar assignments such as assurance engagements.
What is the Quality Management (QM) system?
The QM system covers the audit process from how we engage new clients to completion of the audit assignment itself. Briefly, the QM system must guide us on how we:
- Consider if we have the right experience and resources to carry out an audit assignment for new and existing clients
- Train new and existing staff and ensure they gain experience
- Carry out audits from planning, fieldwork, and completion stages
- Communicate with clients during audits
- Decide when a second review is needed on the audit opinion or on a specialist or problematic area
Why have we made changes?
Two new standards were introduced in December 2020 by the International Auditing and Assurance Standards Board (IAASB), which were then adopted by the UK’s Financial Reporting Council (FRC).
The first new standard, called the ‘International Standard on Quality Management 1 Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Engagements’ (ISQM1) replaces the International Standard on Quality Control 1 for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (ISQC1).
The second new standard, called the ‘International Standard on Quality Management 2 Engagement Quality Reviews’ (ISQM2) effectively replaces some elements of ISQC1.
What has changed?
It might seem that just the name of the standard has changed but there has been a shift in the approach to how audit firms design their system of quality management.
At the heart of the new standard is the approach to tailoring the system of QM to our circumstances, before we had to apply a more standardised system so now, we can focus resource on what really matters to us and our clients.
A further positive from the ISQM 1 implementation is the flexibility to update the QM if our client base changes, staff change, and new and different experience is gained.
ISQM 2 specifically addresses how audit firms consider who and when to use a quality reviewer. The thinking behind the issue of a separate standard is to ensure audit firms focus on their process in this area. We already have procedures in place to appoint a reviewer, internal or external, when we believe an independent and objective view is needed in specific areas such as:
- Where a material and significant estimate is included in the accounts
- Accounting treatment of a significant transaction is contentious
Will I notice any changes when you carry out my audit?
You are unlikely to notice any significant changes to the way we carry out the audit itself but ISQM 1 and ISQM 2 will be operating in the background.
Where can I read more about ISQM 1 and 2?
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Date published: 9 January 2023