In 2020, the International Auditing and Assurance Standards Board (IAASB) approved a revised set of quality management standards. The new IAASB quality management standards represent a significant and important step change in how audit firms approach audit quality in the future, moving from a policy-based approach to a risk -based approach. For many jurisdictions, implementation of these new standards will be required by the end of 2022.
Firms should be formulating plans now to implement these significant new standards. And they should not underestimate the time and effort, effort and resources required – or the potential value of a well -planned implementation.
Firms have an opportunity to implement these new requirements in ways that deliver new levels of value to their audit practice. Rather than being just an exercise in documenting new policies and procedures, technologies can be applied so that the implementation results in real - time engagement monitoring with defined audit quality indicators. This in turn strengthens the ability of firms to keep a finger on the pulse of how engagements are being performed and where continuous improvements can be made.
In fact, a more progressive use of technology is likely to be required to meet the broader requirements of the new standards. For example, the need to proactively and regularly monitor the quality management system to identify deficiencies and evaluate the system’s effectiveness is highly likely to require new, more sophisticated approaches beyond periodic inspections of completed files.
In preparation for these new international standards on auditing, many firms will need to modernize the fundamental elements of their audit approach, including the software they use to document their audit work and the methodology which drives their audit process.
Embracing more dynamic digital technologies is not only vital to the implementation of these new standards and improving audit quality, it also elevates the attractiveness of accounting to future professionals, provides greater value to clients, and more effectively meets the evolving expectations of the business community at large
Design and implementation will occur at two levels - the firm-wide-system level and the engagement level. Firms will naturally concentrate their attention first on designing and implementing a quality management control? system to meet the requirements of ISQM1, the scope of which then dictates the need for policies regarding the quality reviews required by ISQM2.Changes at the engagement level required by ISA 220 will then need to be to be addressed within audit methodologies, either by in-house teams or methodology providers.
The most significant task facing each firm is developing a quality management system which complies with the new international standards on quality managements. This system must be developed through a detailed risk assessment process, which includes three steps
Quality objectives must be established across the following six components:
Firms must establish further quality objectives beyond these areas, as necessary, to achieve the overall objectives of the quality management system.
Next, firms must identify and assess the risks which would cause failure of the defined quality objectives.
This requires understanding and accounting for the circumstances relevant to the firm, as well as the engagements performed by the firm.
Firms must then design and implement responses to address the quality risks identified and assessed.
Finally, firms must include additional responses dictated by the standards - to develop policies and procedures covering ethical requirements, complaints, external communication regarding quality management, and engagement quality reviews.
A monitoring process is required to support the operation of the quality management system and identify deficiencies. Monitoring activities must be established to inform whether the responses designed in Step 3 are operating effectively, as well as whether the established quality objectives and quality risks identified and assessed in Steps 1 and 2 remain appropriate and complete.
Firms must also include the inspection of completed engagements within their monitoring activities.
The firm’s quality management system must be documented with the following items included:
While documentation requirements can be satisfied with simplistic use of documents and spreadsheets, an integrated technology solution will provide a much more robust and valuable quality management system with less reliance on manual processes.