International Audit Standards Board publishes new quality management rules

The International Auditing and Assurance Standards Board (IAASB) has published three new and revised standards aimed at improving an accounting firm’s management of its audit quality.

Regulators, including the PCAOB, believe that strong quality controls are important to audit quality, but over the years they have continued to observe deficiencies in audit engagements as well as problems in firms’ quality control systems in certain areas.

“The standards promote a robust, proactive, scalable and effective approach to quality management and mark a significant evolution of the existing quality control standards,” the IAASB said.

The IAASB standards, issued on Dec. 17, 2020, are:

  • 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 (ISA) 220 (Revised), Quality Management for an Audit of Financial Statements.

The standards become effective on Dec. 15, 2022.

“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,” IAASB Chair Tom Seidenstein said in a statement. “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.”

Key changes are as follow:

  • Increases firm leadership responsibilities and accountability, and improves firm governance A risk-based approach focused on achieving quality objectives
  • Modernizes standards to address technology, networks and the use of external service providers
  • Increases focus on the continual flow of information and appropriate communication internally and externally
  • Proactive monitoring of quality management systems and timely and effective remediation of deficiencies
  • Enhances engagement partner’s responsibility for audit engagement leadership and audit quality
  • Clarifies and strengthens requirements for a more robust engagement quality review

The board said it is also providing Bases for Conclusions and factsheets to help auditors implement the new standards. Additional support guidance will be published in 2021.

Separately, the PCAOB is also working to revise its quality control standards for audit firms. Following the release of a preliminary rulemaking document in December 2019 to solicit the public’s input about ways to improve the board’s quality control standards for audit firms in Concept Release No. 2019-003, Potential Approach to Revisions to PCAOB Quality Control Standards, the board is planning to issue a proposal in 2021.

The PCAOB’s Concept Release builds on the IAASB’s ISQM 1, and the U.S. board is expected to tailor it for domestic use.

For more information on this topic, or to learn how Baker Tilly accounting and assurance specialists can help, contact our team.

We have partnered with Thomson Reuters to issue our monthly Accounting insights. Please feel free to contact Baker Tilly if you have any questions related to these articles or Baker Tilly's Accounting and Assurance Services. ©2020 Thomson Reuters/Tax & Accounting. All Rights Reserved.

DCAA and DCMA Issue Implementation Guidance on Blended Rates
Next up

FASB proposes to ease goodwill triggering event evaluation for private companies, not-for-profits