This document provides an overview of ISQM 1, which establishes standards and provides guidance for quality management at the firm level. It discusses key changes in ISQM 1 including a focus on quality management and customizing the system of quality management. It also outlines the structure and components of ISQM 1. A major focus is on the firm's risk assessment process, which involves establishing quality objectives, identifying and assessing quality risks, designing and implementing responses, and making additions or modifications based on changes to the firm or engagements. The timeline for implementation is also presented.

1. ISQM 1, Quality
Management for
Firms:
All You Need to
Know about the
Firm’s Risk
Assessment Process
Webinar Series Part 1

2. The Quality Management Standards
Page 2
ISQM 1:
Quality
management
at the firm
level
ISA 220
(Revised):
Quality
management
at the
engagement
level
ISQM 2:
Engagement
quality
reviews

3. ISQM 1: Highlights of Key Changes
 Focus on quality management (shift from quality control)
 Customize and tailor the system of quality management (SOQM) to the
nature and circumstances of the firm and the engagements it performs
 Integrated and more proactive approach
 Focus on achieving quality objectives through identifying quality risks and
responding to the quality risks
 Enhanced firm governance and leadership, and increased leadership
responsibilities
 Modernization: technology, networks and external service providers
 Improved information and communication
 More proactive monitoring and effective remediation of deficiencies
Page 3
ISQM 1:
Quality
management
at the firm
level

4. ISQM 1: Applicability
 All firms that perform any of the following engagements:
o Audits or reviews of financial statements
o Other assurance engagements (e.g., extended external reporting, reports on controls at service
organizations)
o Related services engagements (compilations and agreed upon procedures)
 SOQM may affect various areas of the firm not involved in performing these engagements
o Integrate quality management into firm culture, strategy, business processes and operations
o Impact on human resources function and IT function
o Resource allocation across the firm
o Relevant ethical requirements
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5. ISQM 1: The Structure and Components
Page 5
• Standard comprises:
o Eight components
o Other requirements addressing specific topics
• Components address:
o Processes
o Environment in which the system operates
o What is needed to operate the system
o Specific topics fundamental for engagement performance
• Components are not linear and siloed; they operate in an
iterative and integrated manner
o Respond to changes
o Continual flow of remediation and improvement

6. The Firm’s Risk Assessment Process
 Mechanism that enables the firm to
o Focus on quality management and effectively manage quality
o Customize and tailor the SOQM to the nature and circumstances of the
firm and engagements it performs
o Be more proactive
New to ISQM 1
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7. The Firm’s Risk Assessment Process: Quality Objectives
 Establish quality objectives:
o Quality objectives specified in the
components
o Additional quality objectives needed to
achieve the objectives of the SOQM
• Based on firm judgment
 Optional: Establish sub-objectives
o May enhance identification and
assessment of quality risks and designing
responses
 Partially established quality objective is a
deficiency, unless it is not relevant to the
firm
Objective
of the firm
Objective
of the
SOQM
Acceptance and
continuance
Relevant ethical
requirements
Engagement
performance
Resources
Information and
communication
Governance and
leadership
Objective of ISQM 1
Quality objectives -
components
Page 7

8. The Firm’s Risk Assessment Process: Quality Risks
Understand the
conditions, events,
circumstances, actions
or inactions that may
adversely affect the
achievement of the
quality objectives
Quality risks that have
been assessed
Consider which risks have a
reasonable possibility of:
(i) Occurring; and
(ii) Individually, or in combination
with other risks, adversely
affecting the achievement of
one or more quality objectives
Identify and assess the quality risks
Risks = how the
conditions, events,
circumstances, actions
or inactions may
adversely affect the
achievement of the
quality objectives
Take into account how, and the
degree to which, the conditions,
events, circumstances, actions or
inactions may adversely affect the
achievement of the quality objectives
The assessment is
the considered
occurrence and
effect on the
achievement of one
or more quality
objectives
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9. The Firm’s Risk Assessment Process: Quality Risks
 Understand conditions, events, circumstances,
actions or inactions
o Take into account (i.e., think about) how they may
adversely affect the achievement of the quality
objectives
o Identify whether there are risks that are quality risks
 ISQM 1 specifies conditions, events,
circumstances, actions or inactions
o ISQM 1 is not complete (i.e., there may be others)
o Not all are relevant to every quality objective
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10. The Firm’s Risk Assessment Process: Responses
 Mitigate possibility of quality risk occurring, so quality objectives
are achieved
 Design and implement responses to address quality risks
o Based on, and responsive to, the reasons for the assessments
given to the quality risks
 Responses specified in ISQM 1: Not comprehensive and do not
fully address all quality risks
How, and the degree to
which, the conditions, events,
circumstances actions or
inactions affect the quality
objectives
The possible occurrence
of the quality risks

11. The Firm’s Risk Assessment Process: Additions and Modifications
 Proactive approach to quality management – respond to:
o Changes in the nature and circumstances of the firm or its
engagements
• Required to have policies or procedures to identify information that
indicates the need for changes to quality objectives, quality risks
or responses
• Information relates to changes in the nature and circumstances of
the firm or its engagements
o Remedial actions to address deficiencies
• Monitoring and remediation process highlights deficiencies
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12. The Firm’s Risk Assessment Process: How is it Scalable?
 Exercise professional judgment
 Quality objectives outcome based
 Quality risks tailored to the firm
 Responses designed and implemented by the firm
o Limited specified responses
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13. Dec 15,
2022
ISQM 1 Timeline
Page 13
Effective date
Quality
management
standards issued
Dec
2020
• Operation of responses and
monitoring activities
commences
• Evaluate system of quality
management within one year
• Establish quality objectives
• Identify and assess quality risks
• Design and implement responses
• Design and implement monitoring activities

14. Questions

15. • Publications and published videos
– First time implementation guides
• Focus on key areas and more complex aspects of the standards
• Highlights key changes from extant standards
– Fact sheets
– Video: Initial implementation efforts
• Upcoming webinars
Implementation Support
Page 15
Topic Date Time
Resources 29 July 2021 11am – 12pm GMT
The monitoring and
remediation process
5 August 2021 11am – 12pm GMT
Other aspects of ISQM 1 18 August 2021 11am – 12pm GMT

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