Audit update: Quality management upgraded by the ASB
In February 2021, the AICPA Auditing Standards Board (ASB) issued multiple proposals related to improving quality management for CPA firms. Comments are being accepted through June 11, 2021.
A new quality management section of the AICPA Professional Standards called Statement on Quality Management Standards (SQMS) will supersede the Statement on Quality Control Standards (SQCS) No. 8. In addition, AU-C Section 220, Quality Control for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards will be replaced with a section titled Quality Management for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards.
The goal is to provide a framework for developing a scalable, risk-based quality management system that can be more easily adapted to each firm’s unique practice. It will simultaneously converge with quality management standards issued by the International Auditing and Assurance Standards Board (IAASB) in December 2020. The international standards are planned to be used as the foundation for updating the Public Company Accounting Oversight Board (PCAOB) quality management standards for audits of issuers, which were originally developed around the ASB’s quality control standards.
In general, the term “quality control” will be replaced with “quality management.” Yet, the core principle of ensuring engagement quality review remains. For example, the following are important aspects of a quality management system that will be addressed by the new standards:
- Firm governance and leadership
- Firm’s risk assessment process
- Relevant ethical requirements
- Acceptance and continuance of clients and engagements
- Engagement performance
- Information and communication
- Monitoring and remediation process
- Roles and responsibilities of individuals
The firm’s risk assessment process is an important new element that does not exist in current standards. The objective is to better focus the firm’s attention on risks that may have an impact on engagement quality. A three-step process is proposed:
- Establish quality objectives
- Identify and assess risks to the achievement of the quality objectives
- Design and implement responses to address the quality risks
Keep reading the Becker blog for more important audit updates that all accountants should be in-the-know of.
The content contained in this article is for informational purposes only and is not tax advice. You should consult a tax advisor for advice applicable to your situation.
Jennifer has more than 25 years of experience in designing high-quality training programs in a variety of technical and “soft-skills” topics necessary for professional and organizational success. In 2003, she founded Emergent Solutions Group, LLC, where she focuses on designing and delivering practical and engaging accounting and auditing training. Jennifer started her career in audit for Deloitte & Touche. She graduated summa cum laude from Marymount University with a B.B.A. in Accounting.