Date posted: 15/09/2021 4 min read

Evolving quality management in audit firms

New quality management standards have been issued in Australia and New Zealand and implementation needs to start now.

In brief

  • New quality management standards have been issued in Australia and New Zealand
  • The new standards will require auditors and firms to change their quality management approach
  • Firms need to begin the change to be ready for the December 2022 operative date

The AUASB and the NZAuASB have issued three new quality management standards following the revision of the former quality control standards by the IAASB. 

The standards adopt a new approach to quality management and firms need to start the process of implementation now as it will take time to identify and assess risks, and design and implement systems, processes and controls to mitigate the risks. Three standards make up the suite. 

ASQM 1 / PES 3 – strengthens firms’ systems of quality management through a robust, proactive and effective approach to quality management. The standard encourages firms to design a system of quality management tailored to the nature and circumstances of the firm and engagements it performs. Firms are required to have systems of quality management designed and implemented in accordance with ASQM 1/ PES 3 by 15 December 2022. 

ASQM 2 / PES 4 – deals with the appointment and eligibility of the engagement quality reviewer, and the engagement quality reviewer’s responsibilities relating to the performance and documentation of an engagement quality review. It applies to all engagements for which an engagement quality review is required. It is effective for audits and reviews of financial statements for periods beginning on or after 15 December 2022, and other assurance and related services engagements beginning on or after 15 December 2022. 

ASA/ISA (NZ) 220 (Revised) – deals with the engagement partner and engagement team’s responsibilities for quality management for an audit of financial statements. The revised standard modernises the approach to quality management and requires the engagement partner and engagement team to be proactive in managing and achieving quality. It is effective for audits of financial statements for periods beginning on or after 15 December 2022. 

Key changes 

The new standards place greater responsibility on firm leadership for continuously improving the quality of audit and assurance engagements and remediating deficiencies. The suite of standards: 

  • Increases firm leadership responsibilities and accountability and improves firm governance. 
  • Takes a risk-based approach focused on achieving quality objectives. 
  • Modernises the 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. 
  • Promotes proactive monitoring of quality management systems and timely and effective remediation of deficiencies. 
  • Enhances the engagement partner’s responsibility for audit engagement leadership and audit quality. 
  • Clarifies and strengthens requirements for a more robust engagement quality review. 

There are several streams of work underway to support local implementation by small to large firms. The AUASB and NZAuASB have both set up dedicated web pages for the new quality management suite of standards. The pages contain links to a number of resources, including fact sheets, implementation guides, FAQs, videos and webinars. 

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