By MIA Practice Review Department
The Practice Review Department (PRD) wishes to remind practitioners and audit firms in Malaysia that the International Auditing and Assurance Standards Board (IAASB) has approved three (3) new quality management standards, which will be effective from 15 December 2022. The standards, namely International Standards on Quality Management (ISQMs) which encompass ISQM 1, ISQM 2 and the International Standards on Auditing, ISA 220 (Revised), aim to achieve a more robust System of Quality Management for firms using the IAASB’s standards and mark an evolution from a traditional, more linear approach to quality control. The new standards introduce a robust, scalable, and proactive approach to audit quality management which is central to ensuring trust and sustainability in the audit profession.
There are eight (8) components of ISQM 1 and unlike the elements of extent of ISQC 1 that appear disconnected from one another, the 8 components in ISQM 1 are designed to be highly integrated. The 8 components are Governance and leadership, the firm’s Risk assessment process, Relevant ethical requirements, Acceptance and continuance of client relationships and specific engagements, Engagement performance, Resources, Information and communication, and Monitoring and remediation process.
While ISQM 2 applies to all engagements for which an engagement quality review (EQR) is required to be performed in accordance with ISQM 1, ISA 220 (Revised) focuses on quality management at the audit engagement level and requires the audit engagement partner to actively manage and take responsibility for the achievement of quality, especially through sufficient and appropriate involvement throughout the engagement and adherence to the firm’s policies or procedures and the requirements of ISA 220 (Revised).
Recognising that considerable time and effort will need to be deployed into understanding, analysing, designing and implementing a system of quality management that is in compliance with quality management standards, the PRD advises firms and practitioners to start early to avoid any last-ditch attempt or even worse, not complying with the standards when they come into effect. To this, the practitioners and audit firms can refer to the non-authoritative First-Time Implementation Guide published by IAASB in June 2021, Sept 2021 and February 2022 respectively for all the three (3) new ISQMs to further understand their application and help practitioners and firms successfully plan and implement the standards by the effective date of 15 December 2022. While there are various examples given in their publication, IAASB also highlighted that the said publication is not meant to be exhaustive, does not amend or override the international standards and does not substitute for reading the ISQM 1, ISQM2 and ISA 220 (Revised).
We have also summarised below the significant changes arising from the new Quality Management Standards (ISQMs):
* All 3 standards include consideration for scalability to cater for firms of all sizes.
The clock is ticking, and it is never too early for the practitioners and firms to prepare for or update the new requirements on the quality management (QM) standards as the PRD will commence the review on the effective implementation of ISQMs effective 1 January 2023. It is inevitable that firms may have been facing and making various changes in past years or more due to the COVID-19 pandemic which requires time and cost investment, including implementation of these QM standards. However, in the long run, the benefits of implementing ISQMs will far outweigh the costs.