View slides from the introductory webcast series by the International Auditing and Assurance Standards Board on its recently proposed quality management standards. In this webcast, IAASB Member, Karin French discusses the various components of quality management in proposed ISQM 1, which addresses quality management at the firm level. The quality management standards are currently open for public consultation until July 1, 2019. For more information, visit iaasb.org/quality-management

1. Quality Management Webcast Series: Webcast 2
Presented by Karin French, IAASB Member and Chair of the ISQM 1 Task Force

2. Discussed on Webcast 1
Project history
Issues Identified
that Needed to
be Addressed
Illustrative
timeline
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ED-ISQM 1: the
firm’s risk
assessment
process

3. The Components of the Firm’s System of Quality Management
A system of quality management is a continual and iterative
process and is responsive to changes in the nature and
circumstances of the firm and its engagements. It also does not
operate in a linear manner. (Para 8 of ED-ISQM 1)
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4. Section Title 14pt Arial Regular
Governance and Leadership
• Enhanced requirements to address the culture of the firm and the focus on quality, and
extending the culture throughout the firm
– Explicitly addresses the responsibility of all personnel for quality
– Leadership required to demonstrate a commitment to quality through their actions and behaviors, and to
establish the expected behavior of personnel
• New requirement that addresses the linkage between firm’s strategic decisions and actions
(financial or operational priorities) and quality
– Includes the firm’s role in serving the public interest
• New requirement addressing the firm’s organizational structure, and appropriate assignment of
roles, responsibilities and authority
• New requirement that addresses overall planning, obtaining, allocating and assigning
resources (i.e., at the firm leadership level)
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5. Section Title 14pt Arial Regular
Governance and Leadership
• Enhanced and more explicit responsibilities and accountability of firm leadership
– Enhanced requirements for the necessary attributes of leadership
– New requirement for assigning operational responsibility for independence
– New requirement addressing performance evaluations of leadership
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6. • Resources includes human, technological and intellectual resources
– Expanded from extant ISQC 1 to include technological and intellectual resources
– More focus on the resources enabling the design, implementation and operation of the SOQM
(including engagement performance)
– Financial resources explicitly addressed in governance and leadership
• Human resources
– Enhanced requirements for attracting, developing and retaining personnel with the appropriate
competence and capabilities to fulfill their functions, and assigning personnel to engagements
– New requirements addressing evaluation of personnel and personnel’s compensation, promotion
and other incentives, which are linked to quality
• Technological resources
– New requirements for obtaining, developing, implementing and maintaining technological
resources
– IT terminology aligned with proposed ISA 315 (Revised)
Section Title 14pt Arial Regular
Resources
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7. • Intellectual resources
– New requirements for obtaining, developing, implementing and maintaining intellectual resources
– Includes methodology, guidance or other support tools
Section Title 14pt Arial Regular
Resources (cont.)
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8. • New requirements to encourage and promote two-way communication within the firm
• New requirement to have an information system
– Information system may be less sophisticated in the case of an SMP
• New requirements addressing external communication:
– Principles-based approach that addresses all communication with networks and service
providers, and to other external parties
– Transparency reports not required, but firms encouraged to communicate externally when the firm
determines it appropriate to do so
Section Title 14pt Arial Regular
Information and Communication
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9. • Relevant ethical requirements
– Continues to be framework-neutral, but updated to align with restructured and revised IESBA Code,
in particular revised conceptual framework
– Principles-based approach that is robust yet adaptable for all ethical requirements
• Acceptance and continuance
– New requirement that the firm’s financial and operational priorities do not inappropriately influence
the acceptance and continuance decision
– New requirement for the firm to determine whether the firm has access to information to perform the
engagement, or to the persons who provide it
• Engagement performance
– Includes requirements from extant ISQC 1 addressing direction, supervision and review, consultation,
differences of opinion, and retention and maintenance of documentation
– Addresses exercise of professional judgment and professional skepticism by engagement teams
– Required response for firm to perform engagement quality reviews
– ED-ISQM 1 establishes overarching requirements (e.g., direction, supervision and review) and ED-220
builds on these requirements
Section Title 14pt Arial Regular
Subject Matter Specific Topics Addressed by Components
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10. • Substantial enhancements to monitoring and remediation to modernize the standard and
address evolving practice and increased expectations
• Monitoring activities required to cover all responses, i.e., less focus solely on inspection of
engagements
• More focus on tailoring the nature, timing and extent of monitoring activities to the
circumstances of the firm
– Still required to perform inspection of engagements, although increased ability to adapt the process
(may be inspection of in-process engagements and more focus on considering the appropriateness of the
frequency of reviews)
– Results of external inspections and other information considered in determining nature, timing and
extent of monitoring activities
• Enhanced requirements addressing eligibility of those performing monitoring activities
• New framework to guide firms through assessing findings from monitoring activities,
external inspections and other information in order to identify deficiencies and evaluate their
effect on achieving the quality objectives
Section Title 14pt Arial Regular
Monitoring and Remediation Process
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11. Monitoring and Remediation Process (cont.)
The framework for identifying deficiencies
Defined
in para
19(a)
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12. Monitoring and Remediation Process (cont.)
Illustration of identified deficiencies in a system of quality management
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13. • New requirements to perform a root cause analysis on deficiencies
– Only required to be performed on deficiencies (as defined in the standard)
– Scalable approach, depending on the nature and severity of the deficiency
• Enhanced requirements addressing remediation of deficiencies
– Prescriptive remedial actions from extant ISQC 1 removed
– Firm leadership required to evaluate effectiveness of remedial actions
• Enhanced and clarified requirements addressing communication on an ongoing basis about
matters related to M&R with firm leadership and personnel
• New requirement for individual with ultimate responsibility to evaluate whether the system of
quality management provides reasonable assurance
– Undertaken annually or more frequently if the deficiencies appear severe or pervasive
– If it is not effective, leadership required to take prompt and appropriate action
Section Title 14pt Arial Regular
Monitoring and Remediation Process (cont.)
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14. • No requirements for networks themselves
• New requirements to address the firm’s responsibilities (i.e., so that there is not undue
reliance on the network):
– Understand the network requirements or network services and the firm’s responsibilities
– Determine the effect of the network requirements and network services on the firm’s system of quality
management, including determining whether they need to be adapted or supplemented by the firm to
be appropriate for use in its system of quality management
– Determine the effect of network level monitoring activities on the firm’s monitoring activities and the
firm’s responsibilities in relation to such monitoring activities
• Enhanced requirements addressing matters to be communicated between the firm and the
network
• Requirements for networks apply to the network, network firms or another structure or
organization in the network
Section Title 14pt Arial Regular
Networks
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15. • New requirements that apply to circumstances when the firm uses resources from an external
party in the system of quality management
– Includes using an external party in the performance of engagements
– Service from the network, network firms or another structure or organization in the network form part of
network requirements or network services
• Similar concepts to those relating to networks, i.e., need to understand the services and
determine that they are appropriate for use by the firm
Section Title 14pt Arial Regular
Service Providers
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16. Documentation
• Two-step approach:
– Principles-based requirement for documentation to be sufficient to support understanding of SOQM,
consistent implementation and evidence to support evaluation of SOQM
– More specific requirements addressing:
• Quality objectives, quality risks and responses
• Monitoring and remediation
• Networks and service providers
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17. QUESTIONS
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18. Upcoming Webcasts
Overview of ED-ISQM 2 addressing engagement quality reviews
Overview of ED-ISA 220 (Revised) addressing quality management for
audit engagements
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May 7, 2019
7am – 9am ET

19. 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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20. www.iaasb.org
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