'Quality' Sea Change: Auditing Standards Board Issues New Quality Management Standards.

• Author: Peterson, Paul J.

in June, the Auditing Standards Board (ASB) issued new a series of standards that will have a significant impact on every CPA and accounting firm that has an accounting and auditing practice. The Quality Management (QM) standards are the first major changes to what were previously known as the Quality Control (QC) standards in over a decade.

The change from quality control to quality management is more than just terminology. The new standards require firms to focus their attention on the management of their systems of quality management, including continual monitoring, remediation and improvements to the system.

Background

The development of new quality management standards was driven by concerns about audit quality coming out of the results of peer reviews and other studies by regulators such as the Department of Labor. There was a perception that the existing quality control standards led to over-reliance on third-party quality control materials that were not sufficiently tailored to each firm. There was also a concern that smaller firms struggled with applying the quality control standards.

A New Approach

These standards take a new approach compared to the extant QC standards. The new approach requires a firm to customize the design, implementation and operation ofits system of quality management (SQM) based on the nature and circumstances of the firm and the engagements it performs. While this approach will require more of an effort to design and implement its customized SQM, it should result in firms developing SQMs that are customized and more applicable to their practice than the policies most firms currently follow.

The new standard defines eight components of an SQM:

* The firm's risk assessment process (new)

* Governance and leadership

* Relevant ethical requirements

* Acceptance and continuance of client relationships and specific engagements

* Engagement performance

* Resources (including human resources)

* Information and communication (new)

* The monitoring and remediation process

The standard defines two objectives of an effective SQM and aims to provide reasonable assurance that these objectives will be achieved:

* The firm and its personnel fulfill their responsibilities in accordance with professional standards and applicable legal and regulatory requirements and conduct engagements in accordance with such standards and requirements.

* Engagement reports issued by the firm are appropriate in the circumstances.

The standard...