External auditors and accountants, plus service and finance regulators, are presently preparing for ISQM 1 implementation. Replacing the soon-to-be-obsolete ISQC regulations, ISQM 1 is part of a new system of quality management, with an emphasis for firms to demonstrate a commitment to continual improvement. Here we’ll detail an ISQM implementation guide for all those set to be affected by the new regulations.
In order to remain compliant under the new systems of quality management, firms need to have implemented ISQM 1 by December 15th, 2022. This includes:
1. Establishing quality objectives and risks.
2. Implementing monitoring activities.
This is the latest date and a deadline for introducing the new processes. Firms can take on the new objectives at any time prior to the deadline and may wish to test some or all of the new regulations in advance. For those looking for an early implementation, remember that ISQM 1 must be introduced alongside the other two measures of ISQM 2 and ISA 220.
So, what approach do firms need to take in order for successful ISQM 1 implementation?
A key word here is ‘quality’. Firms need to have a system of quality management in place, with considerations towards all aspects of the business. This should include internal relationships and issues alongside external processes. A firm needs to demonstrate excellent quality management across all procedures and strategies.
Such studies on quality contribute to raising standards for employees, clients and business operations as a whole, with a strong emphasis on continual improvement. Find our article on what is included in the new quality management standards for more detailed information.
The new ISQM 1 has eight components to follow:
Of the above eight components listed, risk assessment plus monitoring and remediation have been added to the six objectives detailed in the previous ISQC 1 regulation. External auditors may find some of these familiar. Six of the components have been previously detailed in the ISQC 1, with risk assessment plus monitoring and remediation added to the new system of quality management. For more specific information on the eight components, see our article on Why do we require new quality control standards?
A major shift within ISQM 1 implementation when compared to the present standards is a greater emphasis on risk and the relationship between this and a commitment to quality. Once commitments to quality have been made, firms will need to assess any risks that threaten the approach to quality. The emphasis on risk will operate as proof of quality and the effectiveness of a firm’s overall approach.
Many firms will likely select experts to deal with specific areas of ISQM 1 implementation. However, it’s advisable to address all procedures to staff members throughout an organization so a wider team have an awareness of key issues. Establishing the various components ultimately means introducing risk-assessment-led quality management at all levels of a business until it becomes an integral part of company culture.
Initial implementation of the ISQM 1 standards is just the beginning. Given the new commitment to quality, the process needs to be ongoing, with a firm emphasis on continual improvement. The current ISQC regulations stipulate an annual compliance review, and this will remain in place under the new ISQM 1 implementation. However, given the new risks-to-quality approach, compliance reviews will need to be of greater detail than those completed previously.
If problems are found within a system during the evaluation stage when assessing risk, firms will need to identify these and also their reaction to them.
This stage should include:
a) the discovered deficiency.
b) where and when the deficiency occurred.
c) precise cause of the deficiency.
d) methods used to prevent the same deficiency from occurring in future.
Given the overall commitment to quality, it’s advised that evaluation takes place at least once per year. The evaluation stage is crucial to effective documentation of the system, as it demonstrates a commitment to quality and the steps put in place to guard against repeat occurrences of system deficiencies.
Feeling ready for ISQM 1 implementation?
Whatever stage of the journey your firm is currently at when it comes to the ISQM, Inflo software can be the virtual assistant you need.
Utilizing digital technology, Inflo can provide your company with clearly mapped-out insights, quality objectives, risk assessment documentation and real-time monitoring.