Quality Management Standards: Update

Author: Pat Patterson

SQMS No.1, Statement on Quality Management Standards (SQMS), A Firm’s System of Quality Management supersedes Statement on Quality Control Standards (SQCS) No. 8, A Firm’s System of Quality Control (QC section 10). The Auditing Standards Board (ASB) last made significant changes to its quality control standards in October 2006 with the issuance of SQCS No. 7, A Firm’s System of Quality Control, superseding all previously issued SQCSs. SQCS No. 7 converged with the International Auditing and Assurance Standards Board’s (IAASB) International Standard on Quality Control (ISQC) 1, Quality Control for Firms That Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements. In November 2010, SQCS No. 8 was issued and superseded SQSC No. 7. SQCS No. 8 applied the ASB’s clarity drafting conventions to SQCS No. 7 without changing or expanding it in any significant respect.

Since then, the environment in which firms work has evolved. The power and use of technological resources have increased exponentially, both by businesses and by firms. The expectations of regulators, given high-profile business failures, are higher. In addition, the ASB has received feedback that SQCS No. 8 has a “one size fits all” approach that does not adapt well to differences in the size or nature of firms or their services.

SQMS No. 1 takes a new approach that emphasizes the responsibility of firm leadership for proactively managing quality, while at the same time being scalable to deal with differences in the size of firms and nature of the services they provide. The essence of the new approach is to focus firms’ attention on risks that may have an impact on engagement quality.

Unlike QC section 10, the new approach 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. The new approach also requires the firm to transition from policies and procedures that address standalone elements, as required by QC section 10, to an integrated and iterative approach that reflects upon the system. The standard takes an initiative-taking approach to quality management, with an increased emphasis on a continual flow of remediation and improvement.

An engagement quality (EQ) review is a specified response the firm designs and implements to address quality risks. An EQ reviewer performs the EQ review at the engagement level on behalf of the firm. SQMS No. 1, A Firm’s System of Quality Management, requires that the firm find when an engagement quality review is a suitable response to quality risks.

SQMS Engagement Quality Reviews (SQMS No. 2) addresses:

• The appointment and eligibility of the EQ reviewer


• Performance of EQ reviews

The changes are intended to respond to issues and challenges with the requirements for EQ reviews in SQMS No. 1 and the earlier Statement on Quality Control Standards (SQCS) No. 8, A Firm’s System of Quality Control (QC sec. 10), and AU-C section 220, Quality Control for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards.

• Creating one standard that holds the requirements for EQ reviews, and by making changes that clarify and strengthen aspects of those requirements for a more robust EQ review


• Revising requirements that focus on the objective evaluation of the significant judgments the engagement team makes and the conclusions reached.

SQMS No. 2 is how this is done by an engagement quality review. This course will address those requirements.

Publication Date: February 2023

Designed For
Professionals in management and public accounting, as well as other professionals with a “need to know” what the latest audit requirements, procedures, and techniques on quality management are.

Topics Covered

• A New Approach in auditing focused on Quality Management
• Objective of New Standards
• The Risk Assessment Process
• Relationship between Quality Management Standards
• What should firms be doing now?

Learning Objectives

• Identify, apply, and discuss the attributes of Quality Management as changed

Level
Intermediate

Instructional Method
Self-Study

NASBA Field of Study
Accounting (1 hour), Auditing (1 hour)

Program Prerequisites
General understanding of auditing quality standards.

Advance Preparation
None