View the slides for the introduction to the International Auditing and Assurance Standards Board's recently proposed quality management standards. In this first in a multi-part webcast series, IAASB member Karin French provides a deep dive into a firm's risk assessment process. Video available at www.iaasb.org/quality-management The quality management standards are currently open for public consultation until July 1, 2019.

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

2. Project History
• Findings from ISA Implementation project
• Outreach with regulators and audit oversight bodies
• Respondent comments on public consultation for IAASB’s 2015-2016 Work Plan
(confirmed by consultation on 2017-2018 Work Plan)
2013-2014
Feedback and
concerns
2015-2016
Public consultation
on issues
• Invitation to Comment (ITC) issued December 2015 (addressing professional skepticism,
quality control and group audits)
December 2016
Project proposal
approved
• Project proposal to amend ISQC 1 and ISA 220 addressing quality control (and ISA 600
(group audits))
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3. • Firm governance and leadership’s responsibilities and accountability for quality
• Firms’ monitoring process, for example:
– Monitoring the entire system (not only engagement inspections)
– Addressing results of external inspections
– Understanding causal factors of findings, implementing remedial actions to respond to findings, and
monitoring the effectiveness of remedial actions
• The engagement partner’s responsibilities, including clarity regarding appropriate direction,
supervision and review
• Undue reliance on networks
• Increasing demand for communication with external stakeholders, including through
transparency reports
• The application of the standards by small and medium practices (SMPs), i.e., scalability
Section Title 14pt Arial Regular
Issues Identified that Needed to be Addressed
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4. • Engagement quality control reviews, including:
– Engagements subject to review (including entities that have public interest)
– Eligibility of the engagement quality control reviewer
– Areas addressed in performing the review and the review timing
• Other issues:
– Need for robust two-way communication within the firm
– Matters related to human resources, for example, assessment of personnel and personnel rewards and
incentives
– Increasing use of alternative delivery models
Section Title 14pt Arial Regular
Issues Identified that Needed to be Addressed
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5. The IAASB’s Quality Management Proposals
February
2019:
Three
exposure
drafts
released
for public
comment
• Proposed ISQM 1 (Previously ISQC 1), Quality Management for Firms that Perform Audits or
Reviews of Financial Statements, or Other Assurance or Related Services Engagements
• Proposed ISQM 2, Engagement Quality Reviews
• Proposed ISA 220 (Revised), Quality Management for an Audit of Financial Statements
• Also released: a covering explanatory memorandum – addresses:
– The relationships between the standards
– Overall matters
– Possible effective dates, including a question to seek views about the time needed to implement
the standards
February
2019 – June
2019
• Global outreach and consultation
1 July 2019
• Comment letters due – see http://www.iaasb.org/quality-management for links to the above
documents and to post comments
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6. Illustrative Timeline
July 1,
2019
March
2020
June
2020
December
2021
Comment
period
for EDs
closes
IAASB
approval
of
standards
PIOB
approval
of due
process
Anticipated
effective
date
18 months
This timeline is for illustrative purposes only—approval dates and the
implementation period are dependent on a number of factors, including
stakeholders’ comments on the exposure drafts and on the implementation
period proposed therein
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7. Proposed International Standard on
Quality Management (ISQM) 1: Quality
Management for Firms that Perform Audits
or Reviews of Financial Statements, or
Other Assurance or Related Services
Engagements
ISQM 1
(Previously
ISQC 1)
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8. The Most Significant Change
The new risk-based approach
Proactive
Scalable to the
nature and
circumstances of
the firm and the
engagements it
performs
A more robust system of quality
management tailored for the firm
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9. 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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10. Education
Experience
Examination
Ethics
Enforcement
National Accountancy Body
The Firm’s Risk Assessment Process
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11. Education
Experience
Examination
Ethics
Enforcement
National Accountancy Body
The Firm’s Risk Assessment Process: Establish Quality Objectives
Establish quality
objectives
• Quality objectives required by ED-ISQM 1
– Quality objectives are comprehensive and, if properly addressed by a firm, will result in the system
providing reasonable assurance that its objectives have been achieved
• Firm required to establish additional quality objectives beyond those required by ED-
ISQM 1 when those objectives are necessary to achieve the objective of the standard
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12. Ethics
Enforcement
National Accountancy Body
The Firm’s Risk Assessment Process: Identify and Assess Quality Risks
• No quality risks prescribed by ED-ISQM 1, i.e., firm has to identify and assess its own
quality risks
• The firm understands the conditions, events, circumstances, actions or inactions that
may adversely affect the achievement of its quality objectives, taking into account the
nature and circumstances of the firm and its engagements, to provide the basis for the
identification and assessment of quality risks.
Identify and assess quality risks
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13. Education
Experience
Ethics
Enforcement
National Accountancy Body
The Firm’s Risk Assessment Process: Identify and Assess Quality Risks (cont.)
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14. Education
Experience
Ethics
Enforcement
National Accountancy Body
The Firm’s Risk Assessment Process: Identify and Assess Quality Risks (cont.)
Illustration of the assessment of quality risks
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15. Experience
Ethics
National Accountancy Body
The Firm’s Risk Assessment Process: Design and Implement Responses
Design and implement responses
• Responses required by ED-ISQM 1
• Additional responses designed and implemented by the firm (always required as
responses in ED-ISQM 1 are not sufficient to address all quality risks)
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16. QUESTIONS
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17. Upcoming Webcasts
ED-ISQM 1: Deep dive into governance and leadership, information and
communication, monitoring and remediation and networks and service
providers
April 25, 2019
7am – 9am ET
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

18. 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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19. www.iaasb.org
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