The AICPA Auditing Standards Board has approved new quality management standards designed to improve a firm's risk assessment and audit quality.
The ASB voted Thursday to approve three standards, and the Accounting and Review Services Committee is expected to approve a standard on Wednesday. The four standards scheduled to be released in June are:
- Statement on Quality Management Standards (SQMS) No. 1, A Firm's System of Quality Management;
- SQMS No. 2, Engagement Quality Reviews;
- Statement on Auditing Standards (SAS) No. 146, Quality Management for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards; and
- Statement on Standards for Accounting and Review Services (SSARS) No. 26, Quality Management for an Engagement Conducted in Accordance With Statements on Standards for Accounting and Review Services.
The new standards represent a significant change in how CPA firms will approach audit and assurance quality in the future, moving from a policies-based approach to a risk-based approach. The standards will require firms to assess their individual risks to audit quality and tailor their quality management approaches to address their own, specific risks.
The standards also would guide the engagement partner in determining the level of oversight they need to provide throughout an engagement, and the amount of work they can delegate to other team members, internal or external experts, or specialists.
The quality management standards, among other things, are designed to:
- Increase firm leadership responsibilities and accountability and improve firm governance;
- Introduce a risk-based approach focused on achieving quality objectives;
- Address technology, networks, and the use of external service providers;
- Increase focus on the continual flow of information and appropriate communication internally and externally;
- Promote proactive monitoring of quality management systems and timely and effective remediation of deficiencies;
- Clarify and strengthen requirements for a more robust engagement quality review (EQR); and
- Enhance the engagement partner's responsibility for audit engagement leadership and audit quality.
An objective of the ASB is to converge its standards with those of the International Auditing and Assurance Standards Board (IAASB). The ASB quality management standards align, adapted as appropriate for nonissuers in the United States, with the IAASB's quality management standards, which take effect Dec. 15, 2022.
Implementation of the ASB standards is required by Dec. 15, 2025, for firms that perform engagements in accordance with the Statements on Auditing Standards, Statements on Standards for Accounting and Review Services, and Statements on Standards for Attestation Engagements.
— To comment on this article or to suggest an idea for another article, contact Neil Amato at Neil.Amato@aicpa-cima.com.