IAASB ISQM 1 First-time Implementation Guide PDF

Question Answer International Standard Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related on Quality Services Engagements Management 1 June 2021 version The previous version of the International...

Question Answer International Standard Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related on Quality Services Engagements Management 1 June 2021 version The previous version of the International Standard on Quality Management 1 First-Time A guide for the initial implementation of the International Standard on Quality Management 1 Implementation Guide ISQM 1 International Standard on Quality Management 1, focusing on quality management for firms that perform audits or reviews of financial statements, or other assurance or related services engagements. Responsibility for the The section of ISQM 1 that outlines the responsibilities of the firm's leadership for the system of quality management, System of Quality including establishing and maintaining it. Management The Firm’s Risk The process described in ISQM 1 for the firm to identify and assess the risks that may impact the quality of the Assessment Process engagements. Governance and The section of ISQM 1 that addresses the governance structure and leadership responsibilities within the firm, including Leadership promoting a quality-oriented culture. Relevant Ethical The part of ISQM 1 that focuses on the ethical requirements relevant to the firm's quality management system and the Requirements engagements it performs. Acceptance and The section in ISQM 1 that deals with the firm's process for accepting and continuing client relationships and specific Continuance of Client engagements, considering the impact on quality management. Relationships and Specific Engagements Engagement The aspect of ISQM 1 that covers the firm's performance of engagements, including the quality control procedures and Performance documentation. Resources The resources required by the firm to support the system of quality management and the engagements, as outlined in ISQM 1. Information and The communication and information requirements specified in ISQM 1 to support the operation of the quality management Communication system and the engagements. Monitoring and The process detailed in ISQM 1 for monitoring the system of quality management and taking remedial actions as necessary. Remediation Process ISQM 1 ISQM 1 deals with the firm’s responsibility for having a system of quality management (SOQM). The SOQM is the mechanism that creates an environment that enables and supports engagement teams in performing quality engagements. It helps the firm in achieving consistent engagement quality because it is focused on how the firm manages the quality of engagements performed. SOQM The System of Quality Management (SOQM) is the mechanism that creates an environment that enables and supports engagement teams in performing quality engagements. It helps the firm in achieving consistent engagement quality because it is focused on how the firm manages the quality of engagements performed. ISQC 1 ISQC 1 is the existing standard that ISQM 1 replaces. ISQC 1 stands for Quality Control for Firms that Perform Audits and Reviews of Financial Statements and Other Assurance and Related Services Engagements. ISQM 1 ISQM 1 is a standard that includes enhanced requirements to address firm governance and leadership, modernize the standard to reflect factors affecting the firm’s environment, address information and communication, and promote more proactive monitoring of the system of quality management as a whole. SOQM SOQM refers to the System of Quality Management, which is not viewed as a separate function of the firm according to ISQM 1. Instead, ISQM 1 promotes integrating quality management into the culture of the firm, the firm’s strategy, operational activities, and business processes. External Service External service providers are one of the factors affecting the firm’s environment, and ISQM 1 includes requirements to Providers address technology, networks, and the use of external service providers. Relevant Ethical ISQM 1 addresses the fulfillment of relevant ethical requirements, which may require the firm to design and implement Requirements policies or procedures related to the provision of certain non-assurance services to clients that are public interest entities for which the firm performs audits or reviews of financial statements. What is the objective The objective of ISQM 1 is to provide the firm with reasonable assurance that the firm and its personnel fulfill their of ISQM 1? responsibilities in accordance with professional standards and applicable legal and regulatory requirements, and conduct engagements in accordance with such standards and requirements; and engagement reports issued by the firm or engagement partners are appropriate in the circumstances. What is the objective The objective of the firm according to ISQM 1 is to design, implement and operate a System of Quality Management of the firm according (SOQM). to ISQM 1? Question Answer What is ISQM 1? ISQM 1 is a standard that requires the firm to design, implement, and operate a System of Quality Management (SOQM) to manage the quality of engagements performed by the firm. What is the objective The objective of the SOQM is to determine whether additional quality objectives need to be established and to conclude of the SOQM whether the SOQM provides the firm with reasonable assurance that its objectives have been achieved. according to ISQM 1? What are the The limitations include the fact that human judgment in decision making can be faulty, and that breakdowns in the SOQM limitations of a SOQM may occur due to human error, behavior, or failures in information technology (IT) applications. according to ISQM 1? What is the ISQM 1 deals with quality management at the firm level, while ISQM 2 focuses on engagement quality reviews. ISA 220 relationship between (Revised) deals with quality management at the engagement level and applies to audits of financial statements. ISQM 1, ISQM 2, and ISA 220 (Revised)? SOQM System of Quality Management - The system responsible for designing, implementing, and operating quality management within the firm, including engagement-level operations. ISQM 1 International Standard on Quality Management 1 - The standard that the firm is required to comply with by December 15, 2022, and includes requirements for establishing quality objectives, assessing quality risks, and designing monitoring activities. Effective Date The date by which the firm is required to have the System of Quality Management designed and implemented in compliance with ISQM 1, which is December 15, 2022. Engagement Level The level at which certain aspects of the System of Quality Management may be implemented and operated, depending on the nature and circumstances of the firm and the engagements it performs. Early Adoption of The permission for firms to adopt ISQM 1 before the effective date, with the requirement to adopt all three quality ISQM 1 management standards at the same time. ISA 220 (Revised) International Standard on Auditing 220 (Revised) - The standard that engagement teams performing audits of financial statements are required to comply with. ISQM 1 ISQM 1 is a set of standards that comprises of eight interrelated components dealing with the key aspects of the System of Quality Management (SOQM) and other requirements addressing specific topics. SOQM The System of Quality Management (SOQM) is the framework within which the firm operates to ensure compliance with ISQM 1. It includes policies, procedures, and processes related to quality management. Effective Date The date on which the new and revised policies or procedures of ISQM 1 come into operation. Firms have the option to establish their own effective date for each policy or procedure, which may lessen the impact of many changes all at once. Early Adopting A firm is not considered as 'early adopting' ISQM 1 if only a portion of the new SOQM has been implemented before the effective date. The firm may have implemented policies or procedures before the effective date without being considered as 'early adopting' ISQM 1. Pilot or Testing The firm may pilot or test the new SOQM prior to the effective date, which may be on certain areas of the SOQM or by a selection of engagement teams. The SOQM is not considered to be in operation until the firm has formally implemented and commenced operation of the new SOQM in its entirety. ISQC 1 The extant standard that includes six elements for which the firm needs to design policies and procedures. Although existing policies and procedures may continue to be relevant and appropriate, the firm still needs to establish a SOQM that is compliant with ISQM 1. Components of ISQM ISQM 1 comprises of eight interrelated components dealing with the key aspects of the SOQM, and other requirements 1 addressing specific topics. The firm is required to meet all of the requirements within ISQM 1, including the requirements in the components. Alignment with ISQC 1 The components in ISQM 1 are aligned to the elements in extant ISQC 1 and include two new components: the firm’s risk assessment process and information and communication. What is the firm's risk The process the firm is required to follow in implementing the risk-based approach to quality management. It consists of assessment process establishing quality objectives, identifying and assessing quality risks to the achievement of the quality objectives and in ISQM 1? designing and implementing responses to address the assessed quality risks. What does It establishes the environment in which the SOQM operates, dealing with matters such as the firm’s culture, leadership governance and responsibility and accountability, the firm’s organizational structure, assignment of roles and responsibilities, and resource leadership establish in planning and allocation. ISQM 1? What does relevant It deals with fulfilling relevant ethical requirements by the firm and its personnel, as well as relevant ethical requirements to ethical requirements the extent that they apply to others external to the firm. Question Answer deal with in ISQM 1? What does It deals with the firm’s judgments about whether to accept or continue a client relationship or specific engagement. acceptance and continuance of client relationships and specific engagements deal with in ISQM 1? What does It deals with the firm’s actions to promote and support the consistent performance of quality engagements, including through engagement direction, supervision and review, consultation and differences of opinion. It also includes how the firm supports engagement performance deal with teams in exercising professional judgment and, when applicable to the nature and circumstances of the engagement, in ISQM 1? exercising professional skepticism. What does resources It deals with obtaining, developing, using, maintaining, allocating and assigning resources in a timely manner to enable the deal with in ISQM 1? design, implementation and operation of the SOQM. This includes technological, intellectual and human resources, and addresses service providers. ISQM 1 ISQM 1 refers to the International Standard on Quality Management 1, which sets out the requirements for a firm's system of quality management. Information and In the context of ISQM 1, information and communication deals with obtaining, generating, or using information regarding communication the system of quality management (SOQM), and communicating information within the firm and to external parties on a timely basis to enable the design, implementation, and operation of the SOQM. Monitoring and The monitoring and remediation process, as established by the firm as part of the SOQM, provides the firm with relevant, remediation process reliable, and timely information about the design, implementation, and operation of the SOQM. It also addresses taking appropriate actions to respond to deficiencies such that deficiencies are remediated on a timely basis. Risk Assessment The process used to establish quality objectives, identify and assess quality risks, and design and implement responses. Process Monitoring and The process that monitors the entire System of Quality Management and undertakes monitoring activities for all Remediation Process components, including the risk assessment process. Governance and Establishes the environment that supports the System of Quality Management and reinforces quality, driving and supporting Leadership actions that promote quality. Resources Needed to support other components, including technological resources, manuals, and guides containing relevant ethical requirements. Information and Needed to support other components, including facilitating the assignment of personnel to engagements, supporting the Communication firm’s judgments about the acceptance and continuance of client relationships and specific engagements, and ensuring personnel are aware of their responsibilities regarding relevant ethical requirements. ISQM 1 ISQM 1 is the International Standard on Quality Management 1, which provides guidance on the design, implementation, and operation of a system of quality management for firms performing engagements. Quality Risk Quality risk refers to the risk of not achieving the quality objectives in the system of quality management, which may arise from various components such as resources, engagement performance, relevant ethical requirements, and governance and leadership. Scalability in ISQM 1 Scalability in ISQM 1 requires the firm to customize the design, implementation, and operation of its system of quality management based on the nature and circumstances of the firm and the engagements it performs, exercising professional judgment as per paragraph 19 of ISQM 1. Professional Professional judgment in ISQM 1 involves making informed decisions in areas such as designing policies for inspection of Judgment in ISQM 1 completed engagements and evaluating findings as deficiencies, taking into account factors like quality risks, nature of findings, and monitoring activities. Scalability The ability of a system, network, or process to handle a growing amount of work or its potential to be enlarged to accommodate that growth. Tailoring the SOQM Customizing the System of Quality Management to fit the specific nature and circumstances of the firm and its engagements. Quality Objectives Outcome-based goals set by the firm to achieve and maintain quality in its engagements. Quality Risks Conditions, events, circumstances, actions, or inactions that relate to the nature and circumstances of the firm and its engagements, which may affect the quality of the work. Monitoring and The system put in place by the firm to address and rectify issues identified during monitoring, tailored to the firm’s Remediation Process circumstances. Question Answer Application Material Material in ISQM 1 that includes examples demonstrating how to apply aspects of the standard to less complex and more complex firms. Scalability Examples Specific paragraphs in ISQM 1 that address the customization of the standard to fit less complex and more complex firms. in ISQM 1 Relevant to All Firms Guidance included in the guide that is applicable to all firms, regardless of their nature and circumstances. SOQM System of Quality Management. The system designed, implemented, and operated by the firm to achieve the objectives of ISQM 1. Chief Executive The highest-ranking executive in a company, responsible for making major corporate decisions, managing the overall Officer operations, and resources of the firm. Managing Partner The individual responsible for the overall management of a professional services firm, such as a law or accounting firm. Quality Objectives The specific goals and targets related to quality that the leadership of the firm is responsible and accountable for achieving. Independence The standards and regulations related to maintaining independence and objectivity in performing professional services, Requirements particularly in the context of auditing and assurance engagements. Monitoring and The process of overseeing and addressing deficiencies in the system of quality management, including taking actions Remediation Process related to remediation and communicating matters related to monitoring and remediation. ISQM 1 International Standard on Quality Management 1 (ISQM 1) is a standard that explains how a firm assigns roles, responsibilities, and authority within the firm, and the requirements imposed by law or regulation related to the leadership and management structure or their assigned responsibilities. SOQM System of Quality Management (SOQM) refers to the organizational structure and assignment of roles, responsibilities, and authority that is appropriate to enable the design, implementation, and operation of the quality management system within a firm. Leadership In the context of ISQM 1, leadership refers to the individuals assigned ultimate responsibility and accountability for the System of Quality Management (SOQM), as well as the individuals assigned operational responsibility for the SOQM. ISQM 1 requires the firm to undertake periodic performance evaluations of these individuals to promote accountability. Service Provider A service provider refers to an external entity that the firm cannot outsource the leadership responsibilities to, as the firm is responsible for its System of Quality Management (SOQM) and the individuals assigned to these responsibilities are required to have the appropriate influence and authority within the firm. ISQM 1 ISQM 1 is a set of standards that has changed from the extant standard with respect to leadership, including clarification of who is required to have an understanding of ISQM 1 and increased emphasis on leadership's accountability for the System of Quality Management (SOQM). It also includes expanded requirements to assign specific responsibilities related to the SOQM, enhanced requirements addressing the qualifications of individuals assigned responsibilities, and a new requirement for direct communication lines between responsible individuals. SOQM SOQM stands for System of Quality Management. ISQM 1 has increased emphasis on leadership's accountability for the SOQM and includes expanded requirements to assign specific responsibilities related to the SOQM, as well as enhanced requirements addressing the qualifications of individuals assigned responsibilities. Operational Operational responsibility for the SOQM includes responsibilities for compliance with independence requirements and the Responsibility monitoring and remediation process. Individuals assigned these responsibilities are required to have the appropriate experience, knowledge, influence, and authority within the firm, as well as sufficient time to perform their assigned responsibility. Compliance with Individuals assigned operational responsibility for compliance with independence requirements are required to have the Independence appropriate experience, knowledge, influence, and authority within the firm, as well as sufficient time to perform their Requirements assigned responsibility. Monitoring and Individuals assigned operational responsibility for the monitoring and remediation process are required to have the Remediation Process appropriate experience, knowledge, influence, and authority within the firm, as well as sufficient time to perform their assigned responsibility. There is also a new requirement for direct communication lines between responsible individuals. ISQM 1 International Standard on Quality Management 1 (ISQM 1) is a standard that requires firms to follow a risk-based approach to quality management, focusing on the firm's risk assessment process and implementing responses to appropriately address those risks. Risk-based approach A method of quality management that tailors the System of Quality Management (SOQM) to the firm’s circumstances and the circumstances of the engagements performed by the firm, helping to effectively manage quality through concentrating on what matters most given the nature and circumstances of the firm and the engagements it performs. Quality Objectives The objectives established through the risk assessment process to address quality risks and design and implement responses to address the quality risks. Question Answer Information and Information generated through the information and communication component, which may originate from an internal or Communication external source, and is used to establish quality objectives, identify and assess quality risks, and design and implement responses. Monitoring and The process that provides results used by the firm to establish quality objectives, identify and assess quality risks, and Remediation Process design and implement responses, as part of the risk assessment process. Quality Objectives Specific objectives for the various components of the System of Quality Management (SOQM) that aid the firm in properly identifying and assessing quality risks. Quality Risks Risks that may arise when designing and implementing responses, and may result from the firm's responses to conditions, events, circumstances, actions, or inactions. Jurisdictional Audit A code that the firm may need to establish additional quality objectives for, based on understanding law, regulation, Firm Governance professional standards, and the environment in which the firm operates. Code Service Provider Engaging a service provider to manage the firm’s IT environment, which may create new quality risks for relevant ethical Engagement requirements due to the provider's access to confidential client information. Quality Objectives The specific objectives that a firm is required to establish for components such as governance and leadership, relevant ethical requirements, acceptance and continuance of client relationships and specific engagements, engagement performance, resources, and information and communication, as outlined in ISQM 1. Partially Established A quality objective that is established only in part, leading to a deficiency in the System of Quality Management (SOQM), as Quality Objective per the requirements of ISQM 1. Abbreviated The cautionary requirement to avoid describing the quality objectives in ISQM 1 using different or abbreviated terminology, Terminology in Quality as doing so could inadvertently change the meaning of a quality objective or lose a key aspect of the quality objective. Objectives Lost Key Aspect in An example of a quality objective described differently by the firm that has inadvertently lost a key aspect of the quality Quality Objective objective in ISQM 1, potentially leading to deficiencies in the System of Quality Management (SOQM). Quality Objectives for The absence of quality objectives for the firm’s risk assessment process and the monitoring and remediation process in Risk Assessment and ISQM 1, as these components are processes with specific requirements outlined in the standard. Monitoring Sub-objectives Specific objectives established by the firm to enhance the firm’s identification and assessment of quality risks, and design and implementation of responses. Quality objective in Personnel are hired, developed and retained and have the competence and capabilities to consistently perform quality paragraph 32(a)(i) of engagements, including having knowledge or experience relevant to the engagements the firm performs. ISQM 1 Establishing Additional The requirement for the firm to establish additional quality objectives when necessary to achieve the objectives of the Quality Objectives SOQM, although not expected to be common.