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Last year, as a non-auditor, I joined the International Auditing and Assurance Standards Board (IAASB) with a firm conviction in the value of the audit profession. At its best, the audit profession should drive greater confidence and trust in our economy and the functioning of our markets. At the same time and despite the good work of many auditors, recent corporate failures have raised fundamental questions regarding the relevance and quality of audits.

More than ever, our market participants need greater confidence in reported information and those that provide assurance. The IAASB believes that a robust set of standards focused on quality, coupled with a commitment to rigorous ethical standards, is an important element in enhancing trust in the profession. Today, I am pleased to say the IAASB approved its new and revised suite of Quality Management standards (ISQM 1, ISQM 2, and ISA 220 Revised). We now await approval by the Public Interest Oversight Board.

The passage of our three Quality Management standards is the culmination of our response to the changing environment, the challenges of the effectiveness of our pre-existing quality control standards, and growing market participant needs. The resulting suite of standards are aimed at a more robust System of Quality Management for firms using the IAASB’s standards, and marks an evolution from a traditional, more linear approach to quality control.

The new and revised standards facilitate an integrated and iterative process to manage the quality for the firm’s engagements where the quality standards are applicable. The standards are aimed at comprehensively and actively managing risks to quality, through greater accountability, improved focus on leadership and culture, and continuous improvement through a required monitoring and remediation feedback loop.

Moving from binary, compliance-based processes to a much more proactive, dynamic, risk-based quality management approach is crucial to the audit profession staying a step ahead. We have also been mindful to balance the needs of all stakeholders so that the standards are usable by firms of all sizes and complexities. Taken together, these new standards should establish a new baseline architecture to foster change, progress how firms consistently manage and achieve quality, and better align with the needs of all participants in the financial reporting ecosystem.

A Focus on Leadership and Accountability

The ability to achieve our intended outcome will depend on how firms execute on our standards and the leadership within firms. The standards greatly enhance the expectations and accountability of firm leadership for quality management and creating an appropriate culture committed to the consistent performance of quality engagements.

The new requirements reinforce firm leadership’s responsibility for ensuring the system operates efficiently and effectively. The standards require more rigorous monitoring of the system of quality management, understanding the root causes of deficiencies and swift remediation of those deficiencies. A culture that facilitates proactive and regular self-scrutiny will help engagement teams feel supported in their goals for quality engagements and enable continual improvements in quality.

Encouraging Enhanced Communication and Transparency

Robust two-way communication of information will bolster any well-functioning system. The new standard, International Standard on Quality Management 1, goes beyond existing requirements by placing increased emphasis on information systems and active two-way communication within and outside the firm.

In underscoring the role and importance of external communications and appreciating varying trends in transparency reporting globally, ISQM 1 elevates a firm’s responsibility to communicate externally. ISQM 1 encourages and, in many instances, requires firms to communicate with stakeholders appropriately, particularly when there is a higher public accountability.

Quality Engagements Using Adequate Resources

The standards, once effective, should have an immediate impact on the conduct of individual engagements and provide additional focus on quality. Specifically, the standards highlight the importance of adequate and appropriate resources—human resources, technological resources, and intellectual resources—in the conduct of an engagement.

ISQM 1 and the newly approved International Standard on Quality Management 2 sets out clear guidelines as to when engagement quality reviews are required and what is involved in the review and who may perform the review, respectively. To enhance the objectivity of the reviewer, ISQM 2 introduces a mandatory cooling off period from the review of two years in instances where the engagement partner moves into the role of reviewer on the same engagement. Furthermore, the revised ISA 220 requires the audit engagement partner to actively manage and take responsibility for the achievement of quality, especially through ensuring adherence to the firm’s policies.

Consistent Quality Across Networks

In view of the important role of networks in promoting consistent quality across network firms, ISQM 1 directly addresses firms’ responsibilities for what they receive from networks and how they interact with networks. This reinforces that ultimate responsibility for the firm’s system of quality management resides with the individual firm’s leadership.

What Lies Ahead

Approving the standards is just the first step. We have a responsibility to make sure that these new and revised standards are well understood and implemented effectively—we have a focused first-time implementation plan to enable this.

Firms, in many cases, will have to exercise a great deal of change management for the new and revised standards to be effectively absorbed and implemented. But, without a doubt in my mind, these changes are necessary for advancing the accountancy profession and is a profound step toward preserving the fidelity of what we do.

I truly believe that these new and revised standards will raise the bar for achieving quality engagements. Embedding quality management and a culture of continuous improvement across the board into the firm’s strategic decisions, operations and business processes is a significant step forward.

Tom Seidenstein

Chair*, IAASB and Co-CEO, International Foundation for Ethics and Audit

Tom Seidenstein is the chair of the International Auditing and Assurance Standards Board and the co-CEO of the International Foundation for Ethics and Audit, the recently created organization that houses the IAASB and the International Ethics Standards Board for Accountants (IESBA). Since the beginning of 2023, he has served as co-CEO with IESBA Chair Gabriela Figueiredo Dias.

Mr. Seidenstein was initially appointed chair in July 2019 and reappointed to a three-year term in June 2022. In this role, and now as co-CEO, he has overseen significant revisions of existing audit standards aimed at enhancing public trust, the initiation of a new workstream aimed at creating a global assurance standard for sustainability, and an updated strategy aimed at increasing the responsiveness of standard setting.

Mr. Seidenstein’s career has spanned both the private sector and international standard setting. Prior to joining the IAASB, Mr. Seidenstein held senior strategic leadership positions at the Federal National Mortgage Association, commonly known as Fannie Mae (Senior Vice President, Strategy, Innovation & Capital Management: 2012-19), and the IFRS Foundation (Chief Operating Officer: 2000-2011).

Additionally, Mr. Seidenstein has served at a consulting organization for not-for-profits, CCS Fundraising (Executive Director: 1999-2000), and the Center for Strategic and International Studies (Special Assistant to the Managing Director: 1995-1997). He has also served as a Trustee of the International Valuation Standards Council (IVSC) and on XBRL International’s Board of Advisors.

A strong believer in volunteer service, Mr. Seidenstein has held or holds volunteer leadership positions serving school education the USA and the Make-A-Wish Foundation (both UK and international boards). He holds a Master’s in Public Policy from the Kennedy School of Government at Harvard University and an undergraduate degree (cum laude) from the Princeton School of Public and International Affairs at Princeton University.

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