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Implementing the International Standard on Quality Control 1 (ISQC 1): Challenges, Solutions, and Benefits
In today's environment of rising stakeholder expectations and rapidly evolving regulations, it is even more imperative for public accounting firms to implement the International Standard on Quality Control 1 (ISQC 1), Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements. ISQC 1 provides a sustainable structure for firm-wide quality control, allowing firms to holistically raise the quality of their work.
ISQC 1 comprises six key elements:
- Leadership Responsibilities for Quality within the Firm—provides guidance on promoting an internal culture of quality;
- Relevant Ethical Requirements—provides guidance on ensuring that the firm complies with ethical requirements;
- Acceptance and Continuance of Client Relationships and Specific Engagements—provides guidance on determining whether the firm is able to accept or continue client relationships or specific engagements;
- Human Resources—provides guidance on managing the firm's human resources;
- Engagement Performance—provides guidance on ensuring that engagements are performed appropriately;
- Monitoring—provides guidance on ensuring that the firm's quality control system is relevant, adequate, and operating effectively.
ISQC 1 is germane to firms of all sizes. It is principle-based and does not require all firms to implement the same level of sophisticated controls. Each firm can adopt the quality control policies and procedures that are relevant and applicable to the operating characteristics and size of the firm. In spite of the scalability, smaller firms, especially sole practitioners, may still face a unique set of challenges in implementing ISQC 1 due to their size and limited resources. In 2013, the Institute of Singapore Chartered Accountants (ISCA) interviewed five sole practitioners and shared their experience with implementing SSQC 1 (Singapore Standard on Quality Control 1, which is based on ISQC 1) in a two-part series (Part I and Part II). This discussion summarizes the key points of the series.
Challenges and Solutions
Most of the challenges faced by sole practitioners stem from their limited resources. As the only partner in the firm and many tasks fall on them, they often do not have sufficient time to focus on implementing SSQC 1.
Sole practitioners typically have few staff and may not have staff who are competent or experienced in SSQC 1 implementation. The absence of qualified internal personnel also makes it difficult to conduct internal consultation on complex accounting and auditing issues, or to perform an engagement quality control (EQC) review as the firm may not have an eligible person to take on the role of EQC reviewer.
However, sole practitioners can seek external assistance in these areas. They may consider establishing reciprocal arrangements with like-minded firms, so that they can draw on each others' resources for tasks such as internal monitoring, consultation, and EQC review. Alternatively, for consultation on contentious accounting and auditing issues, it is possible to engage a qualified external specialist on a retainer basis.
Sole practitioners should also leverage the support provided by professional accounting bodies. For example, ISCA offers a Quality Assurance Review Programme, which helps firms to review completed engagements and identify areas for improvement. ISCA also organizes workshops on implementing SSQC 1. Finally, firms can make use of the IFAC Guide to Quality Control for Small- and Medium-Sized Practices, which contains the requirements from ISQC 1 in addition to implementation guidance, including discussion material and an integrated case study that can be used as the basis for education and training. ISCA has also published a series of SSQC 1 Practice Guides to help practitioners implement SSQC 1 effectively.
In addition, as part of its next work program (2015-2016) the International Auditing and Assurance Standards Board (IAASB) has proposed that it will consider issues related to ISQC 1 based on the feedback regarding the implementation challenges faced by some practitioners. IFAC would welcome your comments below.
ISQC 1 is essentially a tool for enhancing the quality of the firm's work. Firstly, having sound controls in place will minimize the incidences of incorrect engagement procedures, poor documentation, or even “over-auditing.”
Implementing ISQC 1 allows firms to improve their engagement procedures. The risk of issuing inappropriate engagement reports is also reduced, thereby lowering the practitioners’ exposure to the risk of liability.
Most importantly, ISQC 1 will help firms develop a culture of quality in the long run. This will encourage the continuing professional development of staff, helping to improve overall competency and retention rates, and lay the foundation for the firm's ongoing growth and ability to respond to the dynamic changes in its environment.
It is recognized that some of the resolutions for the challenges will inevitably require time and cost investment but in the long run, the benefits of implementing ISQC 1 will far outweigh the costs.
Please share your experience of the challenges and benefits of implementing ISQC 1.
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