The AICPA’s Auditing Standards Board (ASB) has issued an Exposure Draft that includes three proposed standards for quality management at the firm and engagement levels, as noted in the Exposure Draft’s Explanatory Memorandum. The comment deadline is June 11, 2021.
Proposed Quality Management Standards
The Exposure Draft includes the following proposed standards:
- Proposed Statement on Quality Management Standards (SQMS), A Firm’s System of Quality Management (proposed SQMS No. 1);
- Proposed SQMS, Engagement Quality Reviews (proposed SQMS No. 2); and
- Proposed Statement on Auditing Standards (SAS), Quality Management for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards (QM SAS).
At their meeting in January 2021, the ASB voted to converge the proposed standards with the quality management standards of the International Auditing and Assurance Standards Board (IAASB), International Standard on Auditing (ISA) 220, Quality Management for an Audit of Financial Statements, as adopted in December 2020. The ASB made changes to the language of the IAASB standards and examples to conform to usage in the United States.
Risk-Based Approach to Quality Management
The ASB’s proposed standards, if adopted as currently written, would apply a risk-based approach to quality management systems within firms. The IAASB’s standard is consistent with that approach, as is the proposal made by the U.S. PCAOB in its concept release issued in December 2019, Potential Approach to Revisions to PCAOB Quality Control Standards. The PCAOB, at the time it issued the Concept Release, noted that many firms that follow PCAOB standards also follow the IAASB standards (or standards based on IAASB’s standards), and therefore, it believed that requiring firms to comply with fundamentally different quality control standards would not be practical.
The approach of the ASB’s proposed standards is to “focus firms’ attention on risks that may have an impact on engagement quality … [and] requires a firm to customize the design, implementation, and operation of its system of quality management based on the nature and circumstances of the firm and the engagements it performs.” It also “requires the firm to transition from policies and procedures that address standalone elements,” as in the current standard, “to an integrated and iterative approach that reflects upon the system as a whole. The proposed standard takes a proactive approach to quality management, with an increased emphasis on a continual flow of remediation and improvement.”
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