IAASB releases audit quality management standards

The International Auditing and Assurance Standards Board has issued a set of three revised standards aimed at improving quality management for auditors across the globe.

The new standards aim to encourage a stronger and more proactive approach to quality management than earlier quality control standards.

“These standards will drive the audit profession to an enhanced approach to quality ‘management’ rather than ‘control’, which better enables the consistent performance of quality engagements, including audits,” said IAASB chair Tom Seidenstein in a statement Thursday. “The standards place greater responsibility on firm leadership for continuously improving the quality of their engagements and remediating when deficiencies are found. When effectively implemented, the standards should help ensure that a commitment to quality is at the heart of firm strategy and operations.”

The set of standards includes:

• International Standard on Quality Management (ISQM) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements;
• ISQM 2, Engagement Quality Reviews; and
• International Standard on Auditing 220 (Revised), Quality Management for an Audit of Financial Statements.

When the IAASB approved the standards in September Seidenstein told Accounting Today about how he sees the move improving quality management at audit firms (see story). “I think it provides a foundation within the firm to be focused on quality in everything that they do,” he said. “In the U.S. and in our existing standards, the concept is quality control. Control and management have different connotations. Control gives us a sense that we're going to make sure to review things after the fact to make sure that we lived up to our standards of quality. Quality management sees these things as a continuous feedback loop, which is really what our standards are about. Quality is not something that is finite, but we hope it will be continuously improving over time, and the standards are meant to move discussion of the management of quality to the heart of firm strategy, firm operations and firm conduct.”

The Public Company Accounting Oversight Board is using ISQM 1, as originally proposed, as a starting point for its own proposed improvements in its quality management standards for firms in the U.S.

PCAOB chairman William Duhnke believes firms should not have to worry about following two sets of standards. “The proposed standard includes specific requirements related to current developments not addressed in PCAOB standards,” he said during an auditing conference in New York last December (see story). “Information gathered through our oversight, outreach and research activities signals that future revisions to the PCAOB's quality control standards should be built on an integrated risk-based framework, similar to Proposed ISQM 1. Many firms that follow PCAOB standards also follow the IAASB standards (or standards based on the IAASB's standards), and we believe it would not be practical to require firms to comply with fundamentally different quality control standards. Indeed, unnecessary differences in standards can detract from audit quality.”

Courtesy of IFAC

The IAASB, which is affiliated with the International Federation of Accountants, has also developed some documents setting out the bases for its conclusions along with fact sheets to support the implementation of the new standards, which are available on the IAASB’s website. More support materials will be available next year.