Date posted: 03/05/2022

Revised NZ quality management standard

The NZ Regulatory Board has updated the NZ Quality Management Standard (PS-1) to reflect, as far as practicable, changes made to international and national quality management (QM) standards.

In brief

  • Revised PS-1: Quality Management updates existing PS-1 to reflect, as far as practicable, changes made to international and national QM standards.
  • Members should start to update their system of Quality Management now.
  • The revised standard will apply to all members of CA ANZ in New Zealand and all other practitioners subject to NZICA jurisdiction from 15 December 2022 (early adoption permitted).

PS-1: Quality Management:

(effective 15 December 2022 (early adoptions permitted))

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The New Zealand Regulatory Board of New Zealand Institute of Chartered Accountants (NZICA) has issued NZICA professional and ethical standard PS-1:  Quality Management (proposed PS-1)1.

Revised PS-1 will apply to all members of CA ANZ in New Zealand and all other practitioners subject to NZICA’s jurisdiction2 from 15 December 2022 (early adoption permitted).

Revised PS-1 updates existing PS-1:  Quality Control (existing PS-1) to be:

  • Consistent, as far as practicable, with ISQM 1: Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements issued by the International Auditing and Assurance Board (IAASB) in December 2020.
  • Consistent, as far as practicable, with PES-3: Quality Management for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements issued by the New Zealand Auditing and Assurance Standards Board (NZAuASB) of the External Reporting Board (XRB) in July 20213
  • Consistent, as far as practicable, with APES 320:  Quality Management for Firms that provide Non-Assurance Services issued by the Australian Accounting Professional & Ethical Standards Board (APESB) in February 2022 (revised APES 320)4.

1. NZICA regulates the conduct of CA ANZ members that reside in New Zealand. This includes maintaining, monitoring compliance with and enforcing professional and ethical standards as required by the NZICA Act 1996.
2. Other practitioners subject to NZICA jurisdiction include:  Licensed Insolvency Practitioners (who are not otherwise a member of CA ANZ); Qualified Statutory Accountants recognised by NZICA in accordance with sections 36S and 36T of the Financial Reporting Act 2013; Non-member principals; and a member of CA ANZ who does not reside in New Zealand but practices the profession of accountancy in New Zealand.
3. Members of CA ANZ in New Zealand who are also assurance practitioners are also required to comply with the suite of quality management standards issued by the NZAuASB of the XRB including PES-3.  The NZAuASB has fully aligned these standards with the quality management standards issued by the IAASB.
4. CA ANZ members in Australia are required to comply with APES 320. All CA ANZ members, regardless of country of residence, should be held to the same standards of professional behaviour (as far as practicable).

New scope and application for PS-1

NZICA usually aligns its standards with the corresponding international standards (where they are available) and it has no reason to apply its specified modification criteria for deviation from the international standards.5

However, in this instance, NZRB considered that the specified modification criteria could be satisfied and full alignment with ISQM 1 (and by extension PES-3) was not appropriate. Instead, existing PS-1 was used as the base standard and updated with selected material from ISQM 1. The reasons for this conclusion are provided in the invitation to comment but take into consideration that APESB has not fully aligned revised APES 320 with ISQM 1.

In order to reduce the compliance burden on NZ assurance practitioners, NZRB has modified the scope and application of revised PS-1 so that a firm's assurance (and related services6) practice only needs to comply with the NZAuASB suite of quality management standards7 and not PS-1. Consequently, the remainder of revised PS-1 applies solely to the firm's non-assurance practice.

New application material explains how PES-3 and PS-1 might be practically reconciled by hybrid firms (i.e. firms with both an assurance practice and a non-assurance practice) and considered by complex non-assurance practices. However, hybrid firms should note that compliance with PS-1 will not result in compliance with PES-3 (the standard that all assurance practitioners must comply with)

5. See NZICA Professional and Ethical Standards:  Due Process and Working Procedures.
6. i.e., services to perform agreed upon procedures or other non-assurance work that may ordinarily be performed by an assurance practitioner as prescribed by NZAuASB. To date, the NZAuASB has not added any other non-assurance services to its' standard setting mandate.
7. i.e., PES 3; PES 4: Quality Engagement Reviews; ISA (NZ) 220 Quality Control for an Audit of Financial Statements

Restructured and re-written

Revised PS-1 is complete revision of existing PS-1 as the standard has been restructured and re-written to enhance clarity and understanding. However, many of the core requirements and associated application material in existing PS-1 remain in proposed PS-1 - merely in a different form.  These  include:

  • Many of the elements (components) of a system of quality control (management) (SOQC(M)), and
  • The focus on policies and procedures, processes and documentation that should be included in a SOQC(M).

Accordingly, it is envisaged that non-assurance practices will take a proactive and iterative risk-based approach to updating their current SOQC to comply with revised PS-1 rather than change their current SOQC completely – unless they choose otherwise.

Overview of key changes

The key changes result primarily from a review of ISQM 1 (and ISA 220(revised)8). The changes include (amongst other things):

  • New application material that encourages firms to take a more proactive and iterative risk-based approach to their SOQM.
  • Enhanced requirements and application material regarding governance and leadership including the introduction of increased responsibility for leadership.
  • New requirements and application material that broaden the “resources” component beyond human resources to include technological resources, intellectual resources, and service providers.
  • New requirements and application material that add a new component to the SOQM to address the information and communication requirements of the SOQM.
  • Enhanced requirements and application material regarding the monitoring and remediation process including material placing more focus on remedial actions.
  • Enhanced requirements and application material regarding documentation requirements to assist the firm to implement and operate its SOQM and to assist NZICA practice reviewers to better assess the firm’s compliance with proposed PS-1.
  • Streamlined requirements and application material regarding networks including their extension to apply to service providers.
  • A new requirement and application material that encourage firms to consider conducting engagement quality reviews for high-risk engagements.
  • Updated and new requirements and application material included in Part 2 – quality management for individual engagements to reflect enhancements to Part 1 – in particular, the strengthening of governance and leadership requirements. 

8. ISA 220 (revised):  Quality Management for an Audit of Financial Statements issued by the IAASB in December 2020. Part 2: Quality Management for Individual Engagements of PS-1 is based on ISA 220: Quality Control for an Audit of Financial Statements adapted for non-assurance practices.

Submissions / Approval process

 20 January 2022  Invitation for submissions on exposure draft issued. 
 14 March 2022  Submissions on exposure draft were due.
 5-12 April 2022  NZRB considered submissions and management’s report. The NZRB finalised revised PS-1
 3 May 2022  Issue of revised PS-1.  Revised PS-1 is published on CA ANZ website, together with a copy of management’s report.
 15 December 2022  Effective date of revised PS-1.

PS-1: Quality Management

(effective 15 December 2022 (early adoption permitted))

Download here

Management Report

Proposed PS-1: Quality Management

Download here

Submissions received:

BDODeloitteAudit Professionals

Invitation to Comment (including ED 2022-1)

(submission closed 14 March 2022)

Download here

NZICA Due Process:

NZICA Ethical and Professional Standards – Due Process and Working Procedures

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New Zealand regulations:

NZICA Act, Rules, Code of Ethics, Professional and Engagement Standards

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