Practical considerations for implementing ISQM 1
Aradhana Ashok
by Aradhana Ashok
Background
As a measure of continuous improvement in audit quality, and in response to high profile audit failures, in late 2020, the International Auditing and Assurance Standards Board (IAASB) issued two new and revised quality management standards.
Effective 15 December 2022, the International Standard on Quality Management 1 (ISQM 1) has been applicable for all firms performing: (a) audit and review of financial statements; (b) assurance engagements other than audit or review of financial statements; and (c) related services engagements.
The International Standard on Quality Management 2 (ISQM 2) is a standard with a specific focus on the engagement of quality reviewers.
ISQM 1 includes risk assessment as a key proactive component of quality management, in addition to information and communication.
Network considerations
ISQM 1 also addresses and emphasises quality management at the network level, which can be leveraged by member firms to avoid duplication. ISQM adherence is not compulsory across all geographies and may not have buy in from all network members, which may create challenges.
Challenges and investments
The increased focus on risk assessment needs an ongoing, evolving response and contemporaneous maintenance with the audit practice.
Governance and leadership considerations at all levels of the firm.
Focus on the monitoring aspects of the process significantly increases investment.
Emphasis on information and communication.
The expanded definition of resources in the ISQM extends focus to all operational matters.
ISQM 1 prompts a rethink of the process and requires approaches that resonate with the way businesses are run today, including implementing a methodology that is continually improving and dynamic in response to emerging changes.
Steps to implement
Start the process – it will not be a one-time, perfect implementation, but a growing system with ongoing changes that response to challenges.
Determine the requirements and budget.
Review available solutions: There are multiple software and training solutions such as Mercia Group, qm.x by Grant Thornton), ISQM-Manager, etc, that provide manuals, documentation, and templates.
There are emerging service providers such as www.trueandfair.pro that are creating more comprehensive systems, including audit documentation and technical guidance; and services such as a Virtual Training Partners or virtual quality partners, that assure objectivity, independence, and cost effectiveness.
Sign off with consensus on the quality management framework.
Agree on periodic review and revamp in response to monitoring and review of the SOQC itself.
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Aradhana Ashok is a partner with JAA & Associates. She has nearly a decade of experience with a Big4 accounting firm across India/UK with specialisation in Audit & Assurance. Her specialisations are SOPs / ERP reviews / Anti-fraud. Audits of global companies.Contact Aradhana.
JAA & Associates is a full service audit & advisory firm, providing contextual, globally relevant, and comprehensive services. With a legacy of over 40 years, the firm prides itself on its width and depth across practice lines, and is guided by the principles of stay agile, stay relevant and stay client focused.
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