Quality Management [Completed]
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Effective dates: |
The IAASB standards are effective for audits of financial statements on December 15, 2022. |
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Last updated: |
January 2022 |
Overview
In February 2019, the International Auditing and Assurance Standards Board (IAASB) released several Exposure Drafts that proposed to bring important changes to the way professional accountancy firms are expected to manage quality—for audits, reviews, and other assurance and related services engagements.
They consisted of:
- Proposed International Standard on Quality Management 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (previously ISQC 1);
- Proposed International Standard on Quality Management 2, Engagement Quality Reviews; and
- Proposed International Standard on Auditing 220 (Revised), Quality Management for an Audit of Financial Statements.
The proposed standards included a new proactive risk-based approach to effective quality management systems within firms that establish the foundation for consistent engagement quality. The new approach improves the scalability of the standards because it promotes a system tailored to the nature and circumstances of the firm and its engagements.
As set out in the Overall Explanatory Memorandum, The IAASB’s Exposure Drafts for Quality Management at the Firm and Engagement Level, Including Engagement Quality Reviews, the IAASB’s proposals intended to improve engagement quality through:
- Modernizing the standards for an evolving and increasingly complex environment, including addressing the impact of technology, networks, and use of external service providers;
- Increasing firm leadership responsibilities and accountability, and improving firm governance;
- More rigorous monitoring of quality management systems and remediating deficiencies;
- Enhancing the engagement partner’s responsibility for audit engagement leadership and audit quality; and
- Addressing the robustness of engagement quality reviews, including engagement selection, documentation, and performance.
Given the significance of the changes and the need for firms to adjust how they manage quality, the IAASB also developed draft guidance and tools, such as examples and frequently asked questions. These materials helped firms understand the proposals, including how to apply them in different circumstances.
In December 2020, following its review of the Feedback on the proposals, the IAASB released the three quality management standards. 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 suite 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.
The standards are effective for audits of financial statements for periods beginning on or after December 15, 2022.
At its meeting on January 21, 2021, the AASB unanimously approved: (i) Canadian Standard on Quality Management (CSQM) 1, Quality Managements for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements; (ii) CSQM 2, Engagement Quality Reviews; (iii) CAS 220, Quality Management for an Audit of Financial Statements; and (iv) related conforming amendments to other CASs.
CSQM 1 is effective as follows: (a) Firms are required to design and implement their system of quality management for audits or reviews of financial statements or other assurance engagements by December 15, 2022. They are required to be evaluated within one year following December 15, 2022. (b) Firms are required to design and implement their system of quality management for related services engagements by December 15, 2023. They are required to be evaluated within one year following this date. The system of quality management is required to be performed within one year following December 15, 2023.
CSQM 2 is effective for: (a) audits and reviews of financial statements and other assurance engagements for periods beginning on or after December 15, 2022; and (b) related services engagements beginning on or after December 15, 2023.
CAS 220 is effective for audits of financial statements for periods beginning on or after December 15, 2022. In approving CSQM 1 and CSQM 2, the AASB considered whether to re-expose new or revised Canadian amendments. The deferral of the effective dates of CSQM 1 and CSQM 2 for related services engagements responds to stakeholder concerns heard during consultation.
On May 1, 2021, CSQM1, CSQM 2 and CAS 220 (Revised) were issued to the the CPA Canada Handbook – Assurance.
Other developments
January 2022
On January 19, 2022, the IAASB released further conforming and consequential amendments to the IAASB’s standards resulting from the new and revised quality management standards, which were released in December 2020. The conforming amendments to the IAASB’s International Standards become effective as of December 15, 2022.
May 2021
On May 1, 2021, CSQM1, CSQM 2 and CAS 220 (Revised) were issued to the the CPA Canada Handbook – Assurance.
December 2020
On December 17, 2020, the IAASB released its three quality management standards. The standards promote a robust, proactive, scalable and effective approach to quality management and mark a significant evolution of the existing quality control standards.
May 2020
On May 18, 2020, the IAASB issued a Revised Detailed Work Plan reflecting the impact of COVID-19 on its work. The IAASB now expects to approve the final proposed ISQM 1, ISQM 2, and ISA 220 (Revised) at its September 2020 meeting.
April 2019
On April 5, 2019, the AASB issued an Exposure Draft proposing the adoption of ISQM 1, ISQM 2 and ISA 220 (Revised), with appropriate Canadian amendments, if any. Comments are requested by June 7, 2019.
February 2019
On February 8, 2019, the IAASB issued for comment several Exposure Drafts that propose to bring important changes to the way professional accountancy firms are expected to manage quality—for audits, reviews, and other assurance and related services engagements. Comments are requested by July 1, 2019.
