Quality Management: New Standards Might Chase Firms From Audit Work.

• Author: Chavez, David
• Position: Standards update

The times are changing for firms that conduct audits--and they will likely affect the willingness of many to perform such engagements.

The Auditing Standards Board (ASB) has issued an exposure draft to address audit quality concerns. It has also continued its effort of convergence with the standards of the International Auditing Standards and Assurance Standards Board.

There are three new standards for quality management at the firm and engagement levels that will need to be implemented by Dec. 15, 2023, so each firm's first annual evaluation of their system will be performed by Dec. 15, 2024:

* Proposed Statement on Quality Management Standards (SQMS 1), A Firm's System of Quality Management

* Proposed SQMS 2, Engagement Quality Reviews

* Proposed Statement on Audit Standards Quality Management for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards

A Firm's Quality Management System

Of the following eight components under SQMS 1, some are the same as Quality Control standards in place, but there are new ones:

1. The firm's risk assessment process (new)

2. Governance and leadership

3. Relevant ethical requirements

4. Acceptance and continuance of client relationships and specific engagements

5. Engagement performance

6. Resources

7. Information and communication (new)

8. The monitoring and remediation process The new risk assessment process requires a firm to establish quality objectives, identify and assess risks to achievement of the quality objections, and design and implement responses to address the quality risks.

The other new component underscores the importance of a continuous How of information and communication by linking the exchange of information to the firm's culture. so it is driven from top leadership.

While the other components may not be new, there are nuances to improve the firm's quality management system.

Engagement Quality (EQ) Reviews

There are requirements for policies and procedures addressing the appointment of engagement quality reviewers and performance of EQ reviews. According to the ASB, the EQ review was put into a separate standard to make it a point of emphasis for the firm's overall quality management.

Appointment, Eligibility of Reviewers

Requirements and application material have been added to address:

* The eligibility of the individuals within the firm responsible for the appointment of EQreviewers.

* The eligibility of individuals to assist the EQ reviewer in performing the...