A previous Gateway discussion focused on the specific challenges in implementing International Standard on Quality Control (ISQC 1), Quality Control for Firms That Perform Audits and Reviews of Financial Statements in SMPs. It also discussed how to overcome these challenges, and the benefits of doing so. The effective implementation of ISQC 1 and International Standard on Auditing (ISA) 220, Quality Control for an Audit of Financial Statements is fundamental to audit quality and underpins users’ confidence in an audit and in financial reporting.
In response to stakeholder concerns, the International Auditing and Assurance Standards Board (IAASB) included a new initiative on quality control in its Strategy for 2015-2019 and Work Plan for 2015-2016. The board subsequently established a working group to research and identify the issues relating to quality control and to propose the scope for the project.
As part of its outreach related to the project, the working group identified certain issues, including:
- Concern about the proportionate application of ISQC 1 to smaller entities, and about the policies and procedures specific to assurance engagements related to smaller entities;
- Concern about the proportionate application of ISA 220 in the audit of smaller entities;
- Inconsistencies in the performance of the monitoring process required by ISQC 1, in particular, the extent to which the firm’s quality control systems are considered, and engagement files are reviewed; and
- The need for firms to evaluate the effect of deficiencies identified as part of internal and external inspections, including appropriate remedial actions to the firm’s systems of quality control.
As the IAASB continues its information-gathering activities on quality control, consideration will be given as to whether standards or other forms of guidance are needed to address these issues.
The IAASB recently issued a survey to inform the scoping of the proposed quality control project, specifically with respect to issues encountered by SMPs in complying with the requirements of ISQC 1 and ISA 220. The survey features questions on the application, scalability, and implementation of ISQC 1, engagement quality control reviews, and remediation.
You are invited to take the survey online or download and complete the survey form. Responses to the survey are requested by March 27, 2015. In addition, please share your feedback below on ISQC 1 or ISA 220. Are there any areas that are unclear, or things that you would change about these particular standards?