Covid-19 has created significant challenges for audit firms, with remote working, higher audit risk and some difficult accounting issues to struggle with. At the same time, there have been major changes to some International Standards on Auditing (ISAs); namely ISA 540 on accounting estimates, as well as UK-specific changes in ISA (UK) 570 on going concern, and ISA (UK) 700 on audit reports for UK audits. Further important changes to ISAs are coming soon.

The new Quality Management (QM) standards (issued by the International Auditing and Assurance Standards Board and being proposed by the FRC in the UK), introduce a new QM approach that is focused on proactively identifying and responding to risks to quality. The key to complying with these standards will be for audit firms to perform their own risk assessment, to ensure that their QM system is designed specifically to address these risks. The standards comprise:

  • International Standard on Quality Management 1 Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (ISQM 1);
  • ISQM 2 Engagement Quality Reviews; and
  • a revised ISA 220 Quality Management for an Audit of Financial Statements.

ISQM 1 replaces ISQC 1. ISQM 2 is a new standard setting out the appointment and eligibility of the engagement quality reviewer and the engagement quality reviewer’s responsibilities relating to the performance and documentation of an engagement quality review (EQR). This EQR is not something entirely new: it was previously the engagement quality control review (EQCR) in ISQC 1 and in ISA 220 (before the latest revisions).

In line with the international standards, the FRC proposes that the QM standards in the UK will apply from 15 December 2022. This means that the systems of quality management are required to be designed and implemented by this date.

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Mr Jeremy Kong June Hon

Ms. Kalaiarasi A/P Murthy
Assistant Manager