ISQM 1 is made up of eight components which are highly integrated and operate together in a continuous manner. While issue 2 of this article focused on the first four components within ISQM 1, this issue will focus on the remaining four components.
Component 5: Engagement performance
In order to address the performance of quality engagements, the firm needs to establish quality objectives, including:
- Employees within the company who truly understand and fulfil their responsibilities in relation to the engagement
- The application of professional judgement and professional skepticism when planning and performing engagements to ensure conclusions reached are appropriate, and
- The assembly and retention of engagement documentation by team members is appropriate.
Such objectives could include the consideration of significant matters that have been raised for future consideration, upon review of work performed. Objectives could also include the consideration of whether appropriate consultations have been undertaken and whether resulting conclusions have been documented and implemented.
Component 6: Increased resources
ISQM1 further details three categories of resources needed to operate the system of quality management and the performance of engagements. These 3 categories include:
- Human resources
- Technical resources and
- Intellectual resources
It is imperative for firms to review their resources in place, assess the appropriateness of such resources, and assess how these are being used and maintained.
Policies and procedures in relation to personnel may address, for example, the recruitment of individuals who hold or are able to develop, appropriate competencies for the role. Training programs specifically addressing the development of competences in personnel could also be included within respective policies and procedures.
Furthermore, policies and procedures in relation to technological resources could include relevant processes for the authorisation of access to the specific IT application and the processing of updates to that specific application.
Component 7: The improvement of information and communication
ISQM 1 emphasizes the importance of a continual flow of information within the firm and its engagement teams. Such flow is encouraged through the establishment of an information system, the need for the firm culture to include the exchange of information, and the communication by the firm with external parties whenever required.
For example, the firm could communicate changes to the system of quality management to all personnel and engagement teams to enable them to take prompt and appropriate action in accordance with their respective responsibilities. The firm could also communicate information obtained through its acceptance and continuance process that is relevant to its engagement teams in planning and performing their engagements.
Component 8: Proactive monitoring of the system as a whole, including timely and effective remediation
Within this component, ISQM 1 places importance not only on the monitoring of a firms’ system as a whole, but also on the evaluation of findings and the identification of any differences. Responses to such findings should then be designed and implemented accordingly.
The monitoring process of the system would include the monitoring of the firm’s system, the tailoring of the nature, timing and extent of such monitoring procedures, as well as the inspection of completed engagements.
Meanwhile, the evaluation of findings and the identification of deficiencies would further involve evaluating the severity and pervasiveness of such deficiencies, and the investigation of the root cause of identified deficiencies.
Once the root causes are identified, firms are required to correct those deficiencies. The implementation of a leadership role within the organisation is also needed to ensure that responses to identified findings are effective and in place.
For example, the firm may identify that engagement teams performing audits of financial statements are not obtaining sufficient appropriate audit evidence in relation to accounting estimates where management’s assumptions have a high degree of subjectivity. While the firm does note the lack of appropriate professional skepticism exercised by the engagement team, the underlying root cause of this issue may relate to a cultural environment, for example, that does not encourage engagement team members to question individuals with greater authority. This could also be due to insufficient direction, supervision and review of the work performed on the engagements.
The system of quality control is required to be evaluated annually in order to ascertain whether objectives set are being reached. ISQM 1 indicates that policies and procedures with respect to the above 8 components need not be addressed through each component individually, but should reflect these components as a whole.
Should you require further information or assistance in relation to the implementation of ISQM 1, please get in touch with John Debattista on jd@zampadebattista.com or Janis Hyzler on jh@zampadebattista.com.
Our assistance goes beyond an advisory role, and could also include the fully fledged drafting of policies and procedures in line with the requirements of ISQM 1.
Book our free webinar being held on 26th April 2022 through the following link. Limited seats are available.
Please note that this article is being published for information purposes only. As such, it does not constitute or should not be interpreted or construed as legal advice or guidance. Zampa Debattista does not accept responsibility or liability for any damages arising as a result of using this information as legal advice or guidance.
John Debattista
Partner
