IAASB Exposure Drafts – Quality Management at the Firm and Engagement Level, Including Engagement Quality Reviews
The International Auditing and Assurance Standards Board (IAASB) issued three Exposure Drafts addressing quality management at the firm and engagement level, including engagement quality reviews, as well as an Overall Explanatory Memorandum. The proposals bring important changes to the way professional accountancy firms are expected to manage quality for audits, reviews, and other assurance and related services engagements. The Auditing and Assurance Standards Board (AASB) will be issuing an exposure draft in early April 2019 proposing to adopt the IAASB’s standards. The IAASB’s proposals are set out in the following three Exposure Drafts:
- Proposed International Standard on Quality Management 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (previously ISQC 1);
- Proposed new International Standard on Quality Management 2, Engagement Quality Reviews; and
- Proposed International Standard on Auditing 220 (Revised), Quality Management for an Audit of Financial Statements.
Overall Explanatory Memorandum
The Overall Explanatory Memorandum provides the significant issues common to the three Exposure Drafts. It also gives details about the proposed effective dates and implementation periods, and includes proposed conforming amendments. This Memorandum should be read in conjunction with the explanatory memorandum for each of the three Exposure Drafts.
Proposed ISQM 1
The proposed ISQM 1 includes a new proactive risk-based approach to effectively managing quality within firms that establish the foundation for consistent engagement quality. The new approach improves the scalability of the standards because it allows a firm to tailor the design of the system of quality management to the nature and circumstances of the firm and the engagements it performs.
With this Exposure Draft, the IAASB included:
Proposed ISQM 2
To ensure that engagement quality reviews continue to be robust and effectively support high-quality audits and other engagements, the IAASB has proposed various enhancements to engagement quality reviews. This includes new proposed ISQM 2 that includes enhancements regarding:
- the eligibility criteria to perform the engagement quality review; and
- the performance and documentation of the engagement quality review.
Proposed ISA 220 (Revised)
Proposed ISA 220 (Revised) will improve the management of quality at the engagement level for audits of financial statements. It contains enhanced and revised requirements, as well as guidance to:
- highlight the importance of the public interest role of audits, improve the emphasis on the importance of the appropriate application of professional judgment and exercise of professional skepticism;
- clarify the role and responsibilities of the engagement partner, particularly the required involvement of the engagement partner throughout the audit, and retain the emphasis on the engagement partner’s responsibility for managing and achieving quality at the engagement level;
- modernize ISA 220 for an evolving environment, including changes in audit delivery models and the use of technology; and
- clarify the relationship between ISA 220 and ISQM 1, including additional clarification of the engagement partner’s and engagement team’s interaction with the firm, and the engagement team’s ability to depend on the firm’s quality management policies or procedures.
Stakeholders are invited to comment directly to the IAASB, with a copy to the AASB, on the Exposure Drafts by July 1, 2019.
Contact
Jacqui Kuypers, CPA, CA
Principal, Auditing and Assurance Standards Board
Phone: +1 (416) 204-3445
Email: [email protected]