How to approach implementation of ISQM (UK) 1
Is your accountancy firm ready for ISQM (UK) 1? By 15 December 2022, certain firms will need to have the new system of quality management in place.
Accountancy firms which need to prepare for ISQM (UK) 1 include firms which:
- perform audits
- reviews of financial statements, or
- other assurance or related services engagements.
To be compliant, firms need to complete implementation of ISQM (UK) 1 by 15 December 2022.
ISQM (UK) 1 requires the firm to design, implement and operate a system of quality management. Doing so requires the exercise of professional judgement. This needs to take into account the nature and circumstances of the firm as well as the engagements it performs.
Those responsible for the governance and leadership of the firm need to create a culture that places quality at its core. A show of recognition of quality has to be in a firms strategy, operational activities and business processes. Evidence of integrating quality throughout the business is also required.
This approach applies to all aspects of the firm’s operations. Not just to its audit and assurance service line.
For example, it will incorporate the firm’s procedures for human resources. Or its compliance with money laundering regulations and the use of information technology.
This is because all help to create to help promote a culture of quality in all aspects of the firm’s operations. Not just the performance of audit and similar assurance engagements.
Responsibilities for ISQM (UK) 1
Ultimate responsibility and accountability for the system of quality management must be with:
- the firm’s chief executive
- managing partner
- or equivalent role.
This is unless it is more suitable to assign this role collectively to the firm’s managing board of partners or equivalent.
Regardless, the following will need to be assigned as appropriate:
- Operational responsibility for the system of quality management; and
- Operational responsibility for specific aspects of the system of quality management. This includes compliance with independence requirements.
In a less complex firm it is possible that one individual may take on all of the roles.
A more complex firm with many layers of leadership. This will require a larger pool of individuals to take responsibility for and operate the system of quality management.
General approach to ISQM (UK) 1
A key aspect of ISQM (UK) 1, and a key difference from the current ISQC (UK)1, is the need for firms to design and implement a risk assessment process. This will need to establish quality objectives, identify and assess quality risks. Additionally, firms will have to design and implement responses to address quality risks.
As part of the system of quality management, firms must establish a monitoring and remediation process. This will have to test how effective the system is and to respond to any perceived deficiencies.
First steps for ISQM (UK) 1
As a first step, a firm must assign responsibility for the implementation for the new quality management standards. This should be to individuals with sufficient authority and experience within the firm.
This makes it is clear who has ownership of the different parts of the process.
Those individuals need to ensure that they have an understanding of the requirements of the standard. This includes its application material and other relevant standards. All designed to promote the performance of quality engagements.
Having this understanding should be completed before any work on the design and implementation begins. This allows the individuals to know what the end goals of ISQM is and the details required to achieve it.
You might also be interested in
Mercia is one of the leading providers of training and support services to the UK accountancy profession. Over 7,000 firms attend our training events, rely on our technical products and promote themselves using our marketing services.