The impact of COVID-19 on financial statement reporting and audit engagements has underscored the need for confidence and trust among all market participants. In September 2020, the IAASB approved its new and revised suite of Quality Management standards (International Standard on Quality Management 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements; International Standard on Quality Management 2, Engagement Quality Reviews; and International Standard on Auditing 220 (Revised), Quality Management for an Audit of Financial Statements). The revised standards shift away from compliance-based procedures to a risk-based approach that is more integrated, tailored, and proactive. They focus on quality and more robustly address firms’ governance and leadership, resources, communication, and monitoring and remediation.
At the previous IFAC Professional Accountancy Organization (PAO) Development & Advisory Group meeting, Group members, many of whom have worked for or closely with PAOs and accountancy regulators at national, regional, and international levels, discussed the changes from quality control to quality management. The successful adoption and implementation of these standards will go a long way toward advancing the accountancy profession, achieving high-quality engagements, and maintaining public trust. Group members note that PAOs will be key players in this regard.
Watch the full presentation from IAASB and Q&A among Advisory Group members
Managing quality to date
Historically, adopting quality control and auditing standards (ISQC 1 and ISA 220) and developing the related quality assurance (QA) review systems have been important elements of the global regulatory and donor agenda. IFAC’s globally-accepted QA benchmark (Statement of Membership Obligation 1) sets out best practices for establishing and operating a QA review system, which all IFAC members must actively aim to address.
IFAC’s International Standards: 2019 Global Status Report revealed that 50% of IFAC member jurisdictions have a quality assurance review system that completely meets the international benchmark. While incredibly encouraging, the news does not alleviate the pressure faced by regulators and PAOs in preparing for the new QM standards. The change means that current QA review mechanisms will need review and amendment. Those jurisdictions that do not meet the existing benchmark face the task of establishing and operationalizing a system compliant with the new Quality Management standards.
Thoughts from around the world
Listen to members of our PAO Development & Advisory Group from Bosnia & Herzegovina, Kosovo, Sri Lanka, and Pakistan reflect on the introduction of extant quality control standards and QA review systems in their jurisdictions several years ago. They describe the preconditions that need to be met for successful implementation and how PAOs positively influenced the uptake of the standards. Each of these components will need to be considered in the adoption and implementation of quality management standards.
Change Management: Educate, Educate, Educate
To implement the necessary change, those responsible for QA will benefit from greater access to shared resources, knowledge, and infrastructure. ‘Those responsible’ refers to a range of accountancy regulators. For example, just 14% of PAOs have sole authority over the quality assurance review process. Meanwhile, 41% of PAOs are not the only “reviewer” and share this responsibility with others (e.g., an audit oversight body, another PAO, etc.) and 45% of PAOs have no operational role in the QA space.
However, PAOs worldwide have long been on the frontlines pushing for the adoption and implementation of international standards and best practices. How can PAOs rise to this new occasion and take on a proactive role? Members of our PAO Development & Advisory Group from Australia, Botswana, Cayman Islands, and Sri Lanka share steps PAOs can take to support members, firms, and small practitioners.
The effective date for the revised quality management standards is December 15, 2022. Using history as a guide, it will likely be a long journey for most. While the change may appear daunting, PAOs should remember that they have a tremendous opportunity to champion the benefits of the standards (e.g., the scalability and tailoring of the standards for small practices). By drawing on their experiences with quality control standards and QA review systems, and employing a collaborative effort, PAOs are well-positioned to take up the change management role.
IFAC will be developing various adoption and implementation initiatives to support PAOs and their members. The IAASB has outlined its implementation plans and produced a range of useful material:
- Introductory videos with overviews of each standard available in English, French, and Spanish
- ISQM 1 Basis for Conclusion & Factsheet
- ISQM 2 Basis for Conclusion & Factsheet
- ISA 220 Basis for Conclusion & Factsheet
Share your story
Does your PAO have a story on overcoming challenges related to strengthening the quality management in your jurisdiction? IFAC would like to feature it alongside:
- Overcoming Obstacles to Enhance Quality Assurance
- How ICAP’s Expertise and Experience Supported Pakistan’s Journey to an Audit Oversight Board
- A Quality Alliance: Uniting for Quality Assurance Reviews in Panama
- Preparing for the Post-COVID World: Experience of post-Soviet States
To learn more about the regulatory framework and status of adoption of quality assurance among IFAC member jurisdictions, be sure to explore IFAC’s Global Impact Map.