Thomas Parry
by Thomas Parry
Tom Parry oversees quality management at Navolio & Tallman. He is a past Chair of the AICPA Peer Review Board and current member of the CA Peer Review Committee. He served on the Quality Management Task Force of the US Auditing Standards Board. He also provides peer review and quality management services for other firms. Contact Tom.
The AICPA Auditing Standards Board and Accounting and Review Service Committee recently issued four interrelated, final standards on quality management, collectively referred to as the QM standards. The objective of these standards is to converge with the International Standards on Quality Management.
The biggest change and challenge for firms will be the new risk-based approach, incorporating a risk assessment process driving firms to focus on quality management tailored to their circumstances. The process encompasses three essential pieces: (1) establishing quality objectives; (2) identifying and assessing the quality risks; and (3) designing and implementing responses.
The QM standards also widen the focus to all resources that firms need both to operate the system and to perform engagements. These resources cover technological resources, intellectual resources, and human resources.
Both internal and external communications are also dealt with in the QM standards. From an internal perspective, they reinforce the need for robust two-way communication throughout the firm; from an external perspective, they encourage firms to be transparent with external parties about the firm's quality management system.
The QM standards also contain more robust leadership and governance requirements that emphasise the responsibility of firm leadership for proactively managing quality.
While monitoring and remediation are established already in current standards, the QM standards have shifted the focus from engagement-level monitoring to monitoring the entire system of quality management. The QM standards still retain the requirement to inspect completed engagements and for engagement partners to be inspected on a cyclical basis. They also still allow for self-inspection, although it is discouraged, and require the firm to establish certain safeguards to remediate the risk presented by self-inspection.
There are also new requirements for networks that make clear the firm is solely responsible for its system of quality management; a network is not responsible for the firm's system.
The QM standards also deal with the selection of the engagement quality reviewer, and the performance and documentation of the review. Unlike the international standards, the US standards do not require a cooling-off period and has retained the current requirement that the report not be released before the engagement quality review.
For relevant ethical requirements, the QM standards take a more principles-based approach than the extant standards.
A firm may start implementing all the new and revised policies or procedures on the effective date, or preferably, test one or more components of the QM standards prior to the effective date. However, the QM standards will not be considered in operation until the firm has formally implemented and commenced operation of the standards in their entirety, which must be no later than 15 December 2025.
Navolio & Tallman LLP is a mid-size CPA firm based in Walnut Creek, CA, USA. Their holistic approach to working with clients, their relationships based on trust, and their advanced accounting and tax expertise are the perfect combination to help clients meet and exceed their goals.
GGI Member FirmNavolio & Tallman LLPWalnut Creek (CA) and Reno (NV), USAT: +1 415 956 1750
Advisory, Auditing & Accounting, Tax