By Hayley Barker Hoogwerf, SAICA Project Director: Assurance
Johannesburg, 17 July 2020 - Investopedia describes quality management as an act of overseeing all activities and tasks that must be accomplished to maintain a desired level of excellence. Quality management is a key component to achieving the desired level of audit quality. The subject of audit quality is complex in that it is difficult to define and measure, yet it is often said that achieving and maintaining the desired level of audit quality is crucial to the continued survival of the auditing profession. This article provides an update on the international standard setting activities that are underway, aimed at maintaining and even enhancing the desired level of audit quality, writes Hayley Barker Hoogwerf, SAICA Project Director: Assurance.
International Standard Setting Activities
The International Auditing and Assurance Standards Board (IAASB) recognised the importance of audit quality and in December 2016 approved a project to revise extant International Standard on Quality Control (ISQC) 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance Engagements and Related Services Engagements (ISQC 1) and ISA 220, Quality Control for an Audit of Financial Statements (ISA 220). Standard-setting can be a lengthy process, and the time that the IAASB is taking to finalise these standards reiterates the complexity of the subject matter. The standards need to contain requirements that are capable of practical implementation, and that will result in a desired level of audit quality being consistently achieved.
The impact of the new and revised requirements is expected to be significant; so much so that they are expected to result in a change to the firms’ organisational structures and operations. To this end, the South African Institute of Chartered Accountants (SAICA) is actively monitoring the developments in this regard to enable us to be in the best position to assist members in implementing the requirements contained in the new and revised standards when they do become effective.
As part of the public consultation process, the IAASB issued three exposure drafts relating to quality management at both the firm and engagement level, namely:
- Proposed International Standard on Quality Management 1 (Previously International Standard on Quality Control (ISQC) 1), Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (ED-ISQM 1).
- Proposed International Standard on Quality Management 2, Engagement Quality Reviews (ED-ISQM 2) – this is a new standard.
- Proposed International Standard on Auditing 220 (Revised), Quality Management for an Audit of Financial Statements (ED-ISA 220).
The deadline for comment on the exposure drafts was 1 July 2019. The IAASB received 99 comment letters from a variety of stakeholders across the globe. The Quality Management Task Forces (Task Forces) provided the IAASB with an overview of the respondent’s feedback on the quality management exposure drafts at the September 2019 IAASB meeting. The Task Forces then presented revised drafts to the IAASB for discussion at the December 2019 and March 2020 meetings, with the initial intention of final approval of these being voted on at the June 2020 meeting.
As indicated in the IAASB Meeting Highlights and Decisions from the March 2020 meeting, matters that were still under discussion include:
- ED-ISQM 1
- The identification and assessment of quality risks,
- External communications,
- Findings and deficiencies,
- The inspection of completed engagements,
- Service providers, and
- The annual evaluation of the system of quality management.
- ED-ISQM 2
- The scope of engagements subject to engagement quality review.
- ED-ISA 220
- How the requirements between those that are the sole responsibility of the engagement partner and those which the engagement partner is permitted to assign to another engagement team member are distinguished.
The IAASB Meeting Highlights and Decisions relating to the June 2020 meeting indicated that the following matters were topics of discussion:
- ED-ISQM 1
- The firm’s risk assessment process,
- Relevant ethical requirements,
- Monitoring and remediation,
- The evaluation of the system of quality management, and
- External communication.
- ED-ISQM 2
- The objectivity of the engagement quality reviewer.
- ED-ISA 220
- Amendments made to clarify how to treat component auditors that are not directly engaged by the firm.
Discussions around the effective date continued. The Task Forces recommended an effective date of 15 December 2022, which the IAASB agreed with.
The global pandemic caused by COVID-19 and the related travel restrictions resulted in the IAASB holding their quarterly meetings virtually, with a condensed agenda. This left the IAASB with no other option but to postpone the approval of the final quality management standards until the September 2020 meeting.
The current working versions of the proposed new and revised standards that are available on the IAASB’s website are different to the exposure drafts that were issued for public comment in 2019. Whether the final quality management standards will contain significantly different requirements to those contained in the exposure drafts is yet to be seen.
SAICA continues to closely monitor the developments in this regard and eagerly awaits the approval of the new and revised quality management standards.
The South African Institute of Chartered Accountants (SAICA), South Africa’s pre-eminent accountancy body, is widely recognised as one of the world’s leading accounting institutes. The Institute provides a wide range of support services to more than 50 000 members and associates who are chartered accountants [CAs(SA)], as well as associate general accountants (AGAs(SA)) and accounting technicians (ATs(SA)), who hold positions as CEOs, MDs, board directors, business owners, chief financial officers, auditors and leaders in every sphere of commerce and industry, and who play a significant role in the nation’s highly dynamic business sector and economic development.
Chartered Accountants are highly valued for their versatile skill set and creative lateral thinking, that's why all of the top 100 Global Brands employ Chartered Accountants.
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