Gary Anders | August 2022
This article was current at the time of publication.
From mid-December 2022, all firms and practitioners providing any level of audit and assurance services will need to comply with the new Auditing Standard ASQM 1.
ASQM 1 is the Australian equivalent of the International Standard on Quality Management [ISQM 1] – Quality Management for Firms that Perform Audits or Reviews of Financial Reports and Other Financial Information, or Other Assurance or Related Services Engagements.
Replacing Australian Standard ASQC 1, the new standard is designed to ensure all firms – regardless of size – engaging in audits, assurance, or related services, have robust quality management systems and procedures.
It encourages practitioners to implement a scalable, risk-based quality management system tailored to the nature and circumstances of the firm and the engagements being performed.
In addition to ASQM 1, the Accounting Professional & Ethical Standards Board’s APES 320 Quality Control for Firms will continue to apply and require firms providing other services that are not audit, assurance and review engagements to have strong quality control processes in place.
“The new standard introduces ongoing and thorough monitoring of a firm’s system of quality management and the rectification of any deficiencies identified, while also addressing issues like technology and external services providers,” CPA Australia’s Senior Manager Professional Standards Melissa Read CPA says.
“Greater responsibility is also assigned to the firm’s leadership for improving governance and quality standards.”
ASQM 1 requires that firms have a system of quality management addressing eight core components:
- The firm’s risk assessment process
- Governance and leadership
- Relevant ethical requirements
- Acceptance and continuance of client relationships and specific engagements
- Engagement performance
- Information and communications
- Monitoring and remediation process.
“This ASQM requires the firm to apply a risk-based approach in designing, implementing and operating the components of the system of quality management in an interconnected and coordinated manner such that the firm proactively manages the quality of engagements performed by the firm,” the Auditing and Assurance Standards Board (AUASB) states.
It notes that the design of a firm’s system of quality management – in particular, the complexity and formality of the system – will vary.
“For example, a firm that performs different types of engagements for a wide variety of entities, including audits of financial reports of listed entities, will likely need to have a more complex and formalised system of quality management and supporting documentation than a firm that performs only reviews of financial reports or agreed-upon procedures engagements.”
Practitioners should be mindful of any activities such as seeking client information from third parties that may be engaging in audit or assurance activities.
Mindset shift for audit practitioners
CPA Australia’s Audit and Assurance Lead, Policy & Advocacy, Tiffany Tan CPA, points out that ASQM 1 has evolved from a “linear and siloed system” to one that operates in an iterative and integrated manner.
“The new quality management standard requires a shift in the mindset of audit practitioners, refocusing on a principles-based approach to managing risks that enable firms to adapt their quality management framework or methodology to meet the demands of an evolving environment,” Tan says.
“The name change is deliberate, moving away from ‘quality control’ to ‘quality management’ to enhance the importance of governance and leadership over the systems of quality management that underpin the performance of high-quality engagements consistently.”
Preparing for the change
Audit Partners Australia Principal and Managing Director Leanne Oliver CPA warns that it’s important for firms engaging in audits, assurance and related services to ensure their quality management systems comply with ASQM 1.
“There is a fair amount of work involved in documenting and reviewing processes and procedures and making sure you’ve got everything in place,” Oliver says.
“The new standard takes things to a more prescriptive level, so I would suggest all practices undertaking audits see this as a fresh start and do a full review of their quality control systems.
“Depending on how much audit a practice does, it could be a time-consuming exercise. Practices that just do a few self-managed super fund audits each year don’t always have all their audit procedures up to date.”
Oliver says the first step for a small-to-medium practice doing only a few audits is to decide whether it wants to be in the audit space.
“There’s so much more risk involved in providing audit services compared to tax or business services,” she says.
“If you’re just doing audits in a small manner, then I would strongly recommend you either cease doing it or decide this is a part of the practice you want to continue and put the resources into making sure you’re compliant.”
Audit and assurance tools and resources
With ASQM 1 designed to be scalable, CPA Australia has developed separate quality management tools for small firms, sole practitioners and network firms.
These tools and other information can be found on CPA Australia’s audit and assurance website.
For more information visit:
- Australian and international publications and videos covering ASQM 1 on the AUASB’s website
- Access ISQM 1, which is also effective from mid-December 2022
- Listen to CPA Australia’s podcast Proposed quality management standards – what are they and how will they impact your practice?
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