The debate over why we require new quality management standards will likely continue for some time. But everyone – the changes are coming, and they’ll officially launch in December of this year. Here’s a look at the logic behind the introduction of the new quality management standards and the key approaches needed for auditors to react to the changes with minimum upheaval.
After several years of discussion and hearsay, the IAASB (International Auditing and Assurance Standards Board) confirmed the new quality management standards in 2021 – ISQM 1, ISQM 2 and ISA 220.The new International Standards of Quality Management are set to replace the current ISQC standards of quality control. The new values are required to improve upon the previous system:
The new system allows for a more bespoke approach for auditors. Under the ISQC, a set of processes were stipulated for all firms, regardless of relevancy. The ISQM allows for a more tailored system, appropriate for the size of firm and nature of services provided.
A major inspiration behind the new quality management standards is the need for a fairer and more accurate system of appraisal, at a time when public scrutiny is at its highest levels in history. Business reputation now hinges on multiple facets, and the rights of both employees and customers have far greater exposure. This is thanks to the likes of social media and the digital world.
The new quality management standards are split into three sections. The greatest changes occur within ISQM 1, where the philosophy of risk-assessed quality management has been introduced.
ISQM 1 applies to all external auditors or those involved in conducting reviews of financial statements. Only standards that are relevant to the size and engagements conducted by a firm require assessment.
Prior to an audit, businesses should have a quality management system put in place, with every process risk-assessed. A solution to each potential problem will also need to be identified.
ISQM 2 is primarily concerned with the right of reviewers to govern quality. Engagement partners can become engagement quality reviewers after a period of 24 months has passed. ISQM 2 has been identified as a method of ensuring objectivity for reviewers.
ISA 220 places ultimate responsibility in the hands of an engagement partner, and overall management of the audit. ISA 220 was present in the previous ISQC standards, but the new regulations have brought the measure up to date by recognizing the changing nature of modern businesses.
See our article on what are ISQMs and why do they matter to your firm for a more detailed overview.
As stated, the new standards can be applied in a bespoke fashion to the specific make-up of a business. CEOs and those appointed to manage processes can set their own objectives when it comes to managing quality, as well as identifying their own solutions through risk assessment.
Although there will likely be teething problems as businesses roll out new processes in accordance with the ISQM 1, there’s a huge boon for all concerned regarding relevancy. As there are no standardized quality control measures in the new standards, companies will no longer need to fit themselves into a model that has little relevance to their own practices.
Find more information on preparation with our article on the ISQM effective date.
The launch date of December 15th, 2022 is understandably a nervous time for both businesses and auditing firms alike. If you’re involved in conducting external reviews and assessments, Inflo software may be the way to smooth your way through the new ISQM standards.
Inflo uses digital technology to manage your manual processes, mapping out insights, risk assessments and quality objectives. Completing analytical work in a fraction of the time it takes a human to process the same information, Inflo frees up your time to manage the new standards. With Inflo you can focus on those areas where human expertise and judgement is required.