Auditing has changed a lot in the last 15 years. Technology has advanced, the business environment has evolved and the ways firms and clients work have changed. So, it makes sense that the quality control standards, which were last substantially changed in 2006, are also due for an update.
That’s why the AICPA Auditing Standards Board (ASB) is proposing changes to three interrelated standards, now referred to as “the quality management standards.” The ASB seeks comments on exposure drafts of these standards by Aug. 31, 2021, intending to issue the final standards in May 2022 and implement them Dec. 15, 2023.
These proposed changes will affect every firm with an accounting and auditing practice, so I encourage you to learn more about the proposed standards and share your thoughts with us. I’ve highlighted some of the major changes below. But if you’d like to learn more details, you can read the exposure draft as well as summaries of each proposed standard or attend one of our upcoming roundtable discussions (up to 1.5 hours of CPE offered).
1. Proposed Statement on Quality Management (SQMS) A Firm’s System of Quality Management: A new risk-based approach
Proposed SQMS A Firm’s System of Quality Management (proposed SQMS No. 1) supersedes the existing quality control standard (QC sec. 10). This proposed standard guides firms in developing the framework for their system of quality management. The proposed standard consists of eight components of a quality management system as well as other requirements that address the roles and responsibilities of the system.
A key change for this standard is the new risk-based approach for achieving quality objectives. Your firm’s first step would be to perform a risk assessment, which you would use to respond to the quality objectives laid out in each of the other components of your quality management system. This approach will be more tailored to your firm rather than a one-size-fits-all approach that may not make sense for your firm’s specific needs.
Another proposed change is that self-inspection will no longer be allowed as part of the firm’s monitoring and remediation. This will help firms avoid threats of objectivity and competency. If you feel strongly that self-inspection (i.e., an individual inspecting work on an engagement they performed) should continue to be permitted, please let us know; we’d love to hear your thoughts.
2. Proposed SQMS Engagement Quality Reviews: A separate standard focused on this risk response
This proposed standard requires that firms determine when and how to do an engagement quality (EQ) review. It also addresses how to appoint an eligible EQ reviewer.
One of the new requirements is that a previous engagement partner must take two years off that engagement before they’re eligible to be an EQ reviewer on it. This will help avoid concerns with objectivity and self-review. We know this is a change from current practice, so please let us know your thoughts on this specifically as well.
3. Proposed Statement on Auditing Standards Quality Management for An Engagement Conducted in Accordance With Generally Accepted Auditing Standards: Clarified engagement partner responsibilities
This proposed standard would supersede AU-C section 220, Quality Control for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards. The proposed standard would clarify an auditor’s quality management responsibilities at the engagement level, as well as responsibilities specific to the engagement partner.
The major changes involve helping the engagement partner determine the correct level of involvement in an audit —what they need to do vs. what they can delegate to other team members, including internal or external experts or specialists. The engagement partner has an overall responsibility to manage quality at the engagement level but is also able to step back and when they have determined that their involvement has been sufficient. For example, an engagement partner does not have to review every workpaper because part of their quality management would have involved making sure the work was performed under the audit plan and supervision and review was happening appropriately throughout the engagement.
How you can prepare
The exposure drafts for these proposed standards are open for comment until Aug. 31. I highly encourage you to read them, think about how they would affect your practice and send us your thoughts by email at firstname.lastname@example.org. As I mentioned, the
upcoming roundtables are another great opportunity to learn more and share your thoughts.
If there’s anything that seems confusing or concerning — or anything that you like! — we want to know. If you have questions or comments on implementation, we want to know. We will read and consider every comment, so don’t miss out on your opportunity to share your feedback before the standard is finalized. The more information we have from you now, the better the final standard will be and the more applicable implementation guidance we can provide.