INTHEBLACK May 2022 - Magazine - Page 8
AT A G L A N C E
GET SMART
// C PA A U S T R A L I A P O L I C Y
MAY
UPDATE
Claire Grayston FCPA,
former senior manager for
audit and assurance policy
at CPA Australia
The International Auditing
and Assurance Standards
Board requires firms and
practitioners offering audit
and assurance services to
have a system of quality
management (QM) in place
by December 2022.
The key to an effective
QM system is robust risk
management, which is as
much for the audit firm
and engagement
partner’s protection as it
is for the benefit of
audited entities in
ensuring high-quality
audits.
THE NEXT LEVEL
NEW QUALITY MANAGEMENT (QM) STANDARDS AIM TO RAISE THE BAR FOR AUDIT QUALITY,
AND FIRMS MUST START PREPARING NOW TO MEET THE NEW REQUIREMENTS AND HAVE
AN EFFECTIVE QM SYSTEM IN PLACE BY DECEMBER THIS YEAR.
Q
uestions about the quality of external audits
have been an ongoing theme in the media
globally for some time. These questions have
arisen largely due to suboptimal auditor
inspection findings reported by the International
Forum of Independent Audit Regulators (IFIAR) in its
annual survey of regulators and incidents of corporate
failures in the absence of the auditor raising
appropriate red flags.
Quality management (QM) is being introduced to
replace quality control for audit firms “to improve the
robustness of their monitoring and remediation, embed
quality into their corporate culture and the ‘tone at the
top’, and improve the robustness of engagement quality
reviews”, advised the International Auditing and
Assurance Standards Board (IAASB) when issuing the
new QM standards.
The IAASB Quality Management Suite of
Standards comprises
ISQM 1 For firms conducting audit or assurance
engagements
ISQM 2 For audit and assurance engagement
quality reviews
ISA 220 For audit engagements
CLICK HERE
TO WATCH
a CPA Australia
webinar on QM for
audit firms
8 ITB May 2022
The IAASB requires firms and practitioners offering
audit or assurance services to have a system of QM in
place at both the firm and engagement level by
mid-December 2022. However, firms cannot wait to take
action until mid-December, as the QM system needs to
be designed and implemented so that it is operating
effectively by then.
For audit firms and engagement partners that have
not yet started the implementation process, there is
much work to be done in designing a QM system.
QM comprises eight components (six of which align
to the existing six Quality Control elements):
• Risk assessment process*
• Governance and leadership
• Relevant ethical requirements
• Acceptance and continuance of client relationships
and specific engagements
• Engagement performance
• Resources
• Information and communication
• Monitoring and remediation process*
*Two new components that are additional to the
elements in the existing Quality Control standards.
RISK-BASED MANAGEMENT OF AUDIT QUALITY
The key to an effective QM system is robust risk
assessment. This will inevitably be unique for each audit
practice, explains Len Jui FCPA, deputy chair of the
IAASB and chair of CPA Australia’s External Reporting
Centre of Excellence. “The standard encourages firms to
design a system of quality management that is tailored
to the nature and circumstances of the firm and
engagements it performs.”
The risk assessment component of QM involves setting
quality objectives for each of the other seven components
of QM, identifying and assessing related quality risks
and addressing those risks in the system of QM.
The thinking that is needed by each firm’s leadership
and by each audit engagement partner to implement
this tailored approach is expected to have a direct and
positive impact on audit quality.
FIRM-WIDE IMPACTS
Audit and assurance is typically just one service among
a number of services offered by a firm or sole
practitioner. However, the impact of QM is likely to be
more pervasive rather than just limited to the audit and
assurance team. This is because the firm’s strategy,