The Link Between Audit Quality and ISQM 1

At Mercia’s recent Ask the Experts: Audit Quality webinar, the question was posed as to whether International Standard on Quality Management 1 (ISQM 1), has improved audits. There was universal agreement amongst Mercia speakers Lee Eagling, Jenny Faulkner, Gemma Archer and Jonathan McGee.

Outlining the ISQM 1 standard

ISQM 1 brings a significant uplift in requirements from the previous quality control standards set out in ISQC 1. As a reminder, each firm had to be able to show that they assessed their quality objectives, risks and responses appropriately in implementing the System of Quality Management before 15 December 2022. In the past year firms also needed to perform their first cycle of monitoring of that System, with the deadline for this being 15 December 2023, with this needing to be performed annually thereafter.

The new ISQM 1 requires a proactive approach in order to manage quality risks, which can cause the issuing of an incorrect audit report.

Continuous improvement

During the Audit Quality webinar, Mercia’s experts agreed that the very nature of ISQM 1 means if that if firms comply, this should naturally drive a process of continuous improvement. The panel did acknowledge it was ‘too early’ to fully measure the extent that the new ISQM standards have improved audit quality, as firms may still have remedial activities in progress following the initial monitoring performed in 2023, meaning it will likely be audits performed during 2024 that see the initial benefits of ISQM 1 being implemented.

It is therefore important that firms have designed and implemented a robust system of quality management (SOQM) under ISQM 1. In particular, ongoing compliance with ISQM 1 is likely be an area of focus monitoring bodies, with a dim view likely to be taken on firms which cannot demonstrate an effective SOQM and effective appraisal and remediation of weaknesses noted. Firm owners are responsible for the governance and leadership of the business need to create a culture that places quality at its core. A show of recognition of quality has to be in a firm’s strategy, operational activities and business processes. Evidence of integrating quality throughout the business is also required.

The approach outlined here applies to all aspects of a firm’s operations, not just to its audit and assurance service line.

On occasion, this responsibility could be shared by the firm’s managing board of partners, or equivalent. As part of the adoption of the new standards, the firm needs to assign operational responsibility for the system of quality management: in most cases, this is likely to be the firm’s audit compliance partner.

Bringing ISQM 1 to life

Mercia has a range of intuitive manuals, consultancy visits, e-learning courses and bite-sized courses designed to help you comply with ISQM 1 and ensure effective implementation of this standard. For more information, please visit our website.

Audit Quality Topic Page https://www.mercia-group.com/news-insights/audit-quality/