View the slides for the introduction to the International Auditing and Assurance Standards Board's recently proposed quality management standards. In this webcast, IAASB members and Task force chairs, Imran Vanker and Lyn Provost discuss the proposed ISQM 2, Engagement Quality Reviews, and ISA 220 (Revised), Quality Management for an Audit of Financial Statements. Video available at www.iaasb.org/quality-management
The quality management standards are currently open for public consultation until July 1, 2019.
IAASB Quality Management Webcast Series: Webcast Three
1. Overview of Quality Management for Audit Engagements and
Engagement Quality Reviews
Presented by:
Lyn Provost, IAASB Member and ISA 220 (Revised) Task Force Chair
Imran Vanker, IAASB Member and ISQM 2 Task Force Chair
Joint Webcast of ED-ISA 220 (Revised) and ED-ISQM 2
New York, NY, United States
May 7, 2019
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2. The IAASB’s Quality Management Proposals
February
2019:
Three
exposure
drafts
released
for public
comment
• Proposed ISQM 1 (Previously ISQC 1), Quality Management for Firms that Perform Audits or
Reviews of Financial Statements, or Other Assurance or Related Services Engagements
• Proposed ISQM 2, Engagement Quality Reviews
• Proposed ISA 220 (Revised), Quality Management for an Audit of Financial Statements
• Also released: a covering explanatory memorandum – addresses:
– The relationships between the standards
– Overall matters
– Possible effective dates, including a question to seek views about the time needed to implement
the standards
February
2019 – June
2019
• Global outreach and consultation
1 July 2019
• Comment letters due – see http://www.iaasb.org/quality-management for links to the above
documents and to post comments
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3. Quality Management Webcast Series
Webcast 1
– March 28,
2019
• Introduction to the Quality Management Standards and Deep Dive into the Firm’s Risk Assessment
Process
Page 3
Webcast 2
– April 25,
2019
Webcast 3
– May 7,
2019
• Overview of Quality Management at the Firm Level
• Overview of Quality Management for Audit Engagements and Engagement Quality Reviews
4. Proposed International
Standard on Auditing
(ISA) 220 (Revised):
Quality Management for
an Audit of Financial
Statements
ISA 220
(Revised)
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5. • Performing audits of financial statements in the public interest; exercising professional
judgment and professional skepticism
• Clarifying the engagement partner’s role and responsibilities
• Interaction with or dependence on firm or network firm quality management processes
and procedures
• Addressing audit delivery models and component auditors
Key Public Interest Issues Addressed in ED-ISA 220 (Revised)
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6. Relationship Between Quality Management at the Firm Level and Engagement Level
Design and
implement additional
responses that address
nature and circumstances of
the specific engagement
Implement the firm-level
responses to be
implemented at
engagement level
Communicate information
to support the design,
implementation and
operation of the firm’s
SOQM
FIRM LEVEL
ENGAGEMENT LEVEL
Communicate
responses to be
implemented at
engagement level
Implement firm-level
responses
Design responses to
quality risks
Identify and assess
quality risks
Establish quality
objectives
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Engagement team
may depend on the
firm’s policies or
procedures
Linkage Between ED-ISQM 1 and ED-ISA 220 (Revised)
7. • Key focus is on the engagement partner’s involvement in the audit as the basis for managing and
achieving quality
– Leadership responsibilities for managing and achieving quality on audits, throughout the audit (e.g.,
planning; managing resources; direction, supervision and review; standing back at the end of the audit)
• Stronger emphasis on public interest context, professional judgment and professional
skepticism in achieving quality at the engagement level
– Professional skepticism supports the quality of judgments
– Lists impediments to skepticism, auditor biases and highlights possible actions to deal with them
• Proposed revisions to definition of engagement team
– Focus on those performing the audit, and any other individuals who perform audit procedures
• Engagement partner
– Clarify that the engagement partner is responsible for managing and achieving quality through
engagement partner’s sufficient and appropriate involvement
– New focus on creating an environment that emphasizes the firm’s culture and the expected
behavior of engagement team members
Introduction, Leadership by the Engagement Partner
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8. • Relevant ethical requirements
– New requirement for the engagement partner to understand relevant ethical requirements applicable
to the nature and circumstances of the engagement
– Focus on whether other team members have been made aware of such requirements and firm’s
related policies and procedures
– Enhanced material related to identification and evaluation of threats to compliance with relevant ethical
requirements, and responsibilities of engagement partner to deal with breaches – aligned with IESBA
Code
• Acceptance and continuance
– Focus on two-way communication with the firm; taking information learned in this process into account
when addressing other ISAs
• Engagement resources
– Broadened focus on resources needed to support the whole audit process - human, technological,
intellectual; sufficient and appropriate for engagement
– Take appropriate action if resources assigned or made available by the firm are insufficient or
inappropriate
Ethical Requirements, Acceptance and Continuance, Resources
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9. • Emphasis on tailoring nature, timing and extent of direction and supervision of team
members, and review of work performed, to the nature and circumstances of the
engagement
– Scalability of performance requirements is key – achieving the requirements needs to be responsive
to the nature and circumstances of the engagement
• Provided additional specificity as to what the engagement partner should review, including:
– Significant matters, other areas involving significant judgments (and conclusions reached thereon),
and other matters
– The financial statements, auditor’s report, and any formal written communications to
management, those charged with governance, or regulators
• Engagement partner and engagement team required to co-operate with the engagement
quality reviewer
Engagement Performance
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10. • Monitoring and remediation
– Engagement team needs to be aware of results of the firm’s monitoring and remediation process, take
appropriation action as needed and remain alert for information relevant to the firm’s process
• Taking overall responsibility
– New stand-back requirement for the engagement partner
o Has the engagement partner’s involvement been sufficient and appropriate throughout the audit such that
the engagement partner has the basis for determining that the significant judgments made and the conclusions
reached are appropriate given the nature and circumstances of the engagement?
o Have the nature and circumstances of the audit, any changes thereto, and the firm’s related policies or
procedures been taken into account in complying with the requirements of this ISA?
• Documentation
– New application material on how to document compliance with the ISA and on the importance of
documentation on the exercise of professional skepticism
Monitoring and Remediation, Standing Back, Documentation
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12. Relationship Between ED-ISQM 1 and ED-ISQM 2
Yes No
ED-ISQM 2:
• Appointment and eligibility of engagement quality reviewers
• Performance of the engagement quality review
• Documentation of engagement quality review
ED-ISQM 2
does not
apply
Engagement quality review
required?
ED-ISQM 1:
Requirements for the selection of
engagements for engagement
quality review
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13. • An engagement quality review is a firm-level response to quality risks relating to the
engagement performance component of the firm’s system of quality management
• ED-ISQM 2 incorporates and enhances requirements of extant ISQC 1 and ISA 220
• How does ED-ISQM 2 address public interest considerations for engagement quality reviews?
– Engagement quality reviews are still required for audits of listed entities
– Engagement quality reviews will be required for more engagements
– Enhanced eligibility criteria to be appointed as an engagement quality reviewer
– More robust performance and documentation requirements
Engagement Quality Reviews: An Overview
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14. • Enhancements to the selection of engagements for engagement quality review – firm
required to establish policies or procedures that require an engagement quality review for:
– Audits of listed entities (required in extant ISQC 1)
– Audits of financial statements of entities the firm determines are of significant public interest (new)
o Entities of significant public interest is a concept already in other ISAs, e.g., ISA 700 (Revised)
– Audits of entities for which an engagement quality review is required under law or regulation
(included as guidance in extant ISQC 1)
– Audits or other engagements for which the firm determines that an engagement quality review is an
appropriate response to assessed quality risks, based on the reasons for the assessments given to
those risks (new)
Engagements Requiring an Engagement Quality Review
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15. • Firm policies or procedures required to set forth eligibility criteria for appointment as an
engagement quality reviewer
– Enhanced guidance on considerations regarding the competence and capability of the engagement
quality reviewer
o For example, understanding of standards / law / regulation, knowledge of industry
– New requirement that engagement quality reviewer has sufficient time to perform the engagement
quality review
– Enhanced requirements on objectivity of engagement quality reviewer
o New requirement to comply with relevant ethical requirements, including in relation to threats to objectivity
o Limitations on eligibility to be appointed as engagement quality reviewer
– New application material cites an example of firm policies and procedures that limit eligibility is determining a suitable
cooling-off period that depends upon the facts and circumstances of the engagement, and applicable provisions of law or
regulation or relevant ethical requirements
o Enhanced guidance on impact on EQ reviewer’s objectivity of discussions with engagement team
– Enhanced application material on appropriate authority of the engagement quality reviewer
o Firm policies or procedures addressing differences of opinion may enhance authority
Eligibility Criteria for Engagement Quality Reviewers
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16. • Firm policies or procedures required to set forth eligibility criteria for individuals who assist
the engagement quality reviewer
• Explicit eligibility criteria for assistants
– Competence and capabilities, including sufficient time to perform assigned duties
– Compliance with:
o Relevant ethical requirements
o Requirements of law and regulation, if applicable
• Engagement quality reviewer takes responsibility for performance of the engagement quality
review, including the appropriateness of the work performed by individuals assisting in the
review
Individuals Who Assist the Engagement Quality Reviewer
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17. Performance of the Engagement Quality Review
• Enhanced requirements for performance of an engagement review
– New requirement to read and understand information provided by the firm about the results of its
monitoring and remediation
– Enhanced application material on identifying significant judgments made by the engagement team
and conclusions reached thereon
o For audits of financial statements, builds on requirements in the ISAs in relation to significant matters and
significant judgments
– New requirement to evaluate:
o Engagement team’s basis for making significant judgments, including when applicable the appropriate
exercise of professional skepticism
o Whether conclusions reached by the engagement team were appropriate
– New requirement if there are concerns that the engagement team’s significant judgments were not
appropriate, including actions to take in such cases
– New requirement for the engagement quality reviewer to perform a stand-back evaluation of whether
the performance requirements of ED-ISQM 2 were fulfilled and the engagement quality review was
complete
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18. Documentation of the Engagement Quality Review
• Enhanced requirements for documentation of engagement quality reviews – required to be
sufficient to enable an experienced practitioner, having no previous connection with the
engagement, to understand the nature, timing and extent of the procedures performed by the
engagement quality reviewer
• Requirement for engagement quality review documentation be included with the engagement
documentation
• Required documentation explicitly includes:
– Identification of the engagement quality reviewer and assistants
– Identification of the engagement documentation reviewed
– Documentation of the engagement quality reviewer’s stand-back evaluation
– Date of completion of the engagement quality review
• New application material on:
– The form, content and extent of the documentation
– How the engagement quality review may be documented
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20. Illustrative Timeline
July 1,
2019
March
2020
June
2020
December
2021
Comment
period
for EDs
closes
IAASB
approval
of
standards
PIOB
approval
of due
process
Anticipated
effective
date
18 months
This timeline is for illustrative purposes only—approval dates and the
implementation period are dependent on a number of factors, including
stakeholders’ comments on the exposure drafts and on the implementation
period proposed therein
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21. How to Comment
Other useful resources:
• Draft Examples: How the Nature and Circumstances of the Firm and the Engagements It
Performs Affect the Implementation of Proposed ISQM 1
• Draft Frequently Asked Questions Regarding Proposed ISQM 1
New resources will be available throughout the consultation period –
keep checking back
www.iaasb.org/quality-management
Comments due by July 1, 2019
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Mention that paragraph A8 of ED-220 describes matters that the EP may take into account determining whether, and if so, the degree to which, the engagement partner may depend on the firm’s policies or procedures in complying with the requirements of ISA 220.
Note – The timeline is an illustration to stimulated views on whether the implementation period is appropriate. Please emphasize that the December 2021 anticipated effective date is subject to the comments received, and may vary based on the time needed to finalize the standards, further board discussions on the implementation period.