Has Your Firm Assessed Its Quality Risks?
By Tom Parry, Navolio & Tallman LLP
The International Auditing and Assurance Standards Board (IAASB) recently finalised its quality management standards (QMS), and the US Auditing Standards Board just issued Proposed Quality Management Standards that are intended to converge with the IAASB standards and include:
- Statement on QMS (SQMS) 1 - A Firm’s System of Quality Management (System)
- SQMS 2 - Engagement Quality Reviews (EQR)
- Statement on Auditing Standards (SAS) - Quality Management for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards
The proposed standards provide for a new, risk-based approach to designing systems within CPA firms that focuses firms’ attention on risks that may have an impact on engagement quality. Unlike current standards, the new approach requires a firm to customise the design, implementation, and operation of its system based on the nature and circumstances of the firm and the engagements it performs.
SQMS 1 addresses the firm’s responsibility for establishing a system. Similar to current standards, it requires that the firm determines when an EQR is an appropriate response to quality risks and requires firms to include the inspection of engagements in its monitoring activities. However, SQMS 1 prohibits engagement team members or the engagement quality reviewer of an engagement from performing any inspection of that engagement.
SQMS 2 contains requirements for policies and procedures addressing the appointment and eligibility of an engagement quality reviewer and performance of an EQR. Of note, SQMS 2 requires a twoyear cooling-off period before a former engagement partner can serve as an engagement quality reviewer on that engagement.
The new SAS encourages proactive management of quality at the engagement level, emphasises the importance of exercising professional scepticism, enhances the documentation of the auditor’s judgments, and reinforces the need for robust communications throughout the audit.
Tom ParryGGI member firm
Navolio & Tallman LLP
Advisory, Auditing & Accounting, Tax
San Francisco (CA), USA
T: +1 415 956 1750
Navolio & Tallman LLP is a boutique CPA firm located in San Francisco. Their holistic approach to working with clients, their relationships based on trust, and their advanced accounting and tax expertise are the perfect combination to help clients meet and exceed their goals.
Tom Parry oversees quality control at Navolio & Tallman. He is the immediate past chair of the AICPA Peer Review Board, member of the CA Peer Review and Accounting Principles and Auditing Standards Committees and serves on the Quality Control task force of the US Auditing Standards Board. He also provides peer review and quality control services for other firms.
Published: Auditing, Reporting & Compliance Newsletter, No. 05, Spring 2021 l Photo: Mathias Podstawka - stock.adobe.com