A New Approach to Quality Management Standards for Peer Review
The American Institute of CPAs’ (AICPA) Auditing Standards Board (ASB) has issued the exposure draft (ED) Proposed Quality Management Standards. The changes proposed are, in part, responses to peer review findings. The changes are significant and apply to all firms with an accounting and auditing practice.
Though the Auditing Standards Board (ASB) has designed the new standards to be scalable to different sized firms, as proposed your firm will need to change its system of quality control to incorporate a new system of quality management. In addition, while many of the required changes could be minor, some changes required may likely be significant. For example, current standards allow engagements to be inspected by a member of the engagement team (self-inspection). Under the proposed standard this would be prohibited; thus, many smaller firms will be required to engage individuals outside the firm to perform annual inspections.
The proposal includes three interrelated standards that address the way CPA firms manage quality for their accounting and auditing practices. The standards offer a new proactive, risk-based approach to effective quality management systems within CPA firms, which will improve the scalability of the standards and promote a system tailored to the firm and its engagements. .
“As the environment in which practitioners offer services becomes more diverse, it’s more important than ever for CPA firms to tailor their quality management processes to their circumstances and maintain and enhance audit quality,” said Tracy Harding, CPA, AICPA Auditing Standards Board Chair. “Our proposed revisions to the quality management standards offer CPA firms a framework for developing a quality management system that addresses each firm’s practice.”
The proposed standards include changes such as using the terms quality management and engagement quality review instead of quality control and engagement quality control review, respectively, used in the current standards. The new risk-based approach requires firms to establish prescribed quality objectives, identify and assess risks to the achievement of those objectives, and design and implement responses.
The proposed standards would:
- supersede Statement on Quality Control Standards (SQCS) No. 8, A Firm’s System of Quality Control (QC section 10)
- create a new QM section in AICPA Professional Standards,
- supersede SAS No. 122, as amended, section 220, Quality Control for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards (AU-C section 220),
- substantially converge with the International Audit & Assurance Board’s (IAASB) quality management standards.
An overview of the proposed standards can be downloaded here and includes:
- Proposed Statement on Quality Management Standards (SQMS) A Firm’s System of Quality Management (Proposed SQMS 1)
- Proposed SQMS, Engagement Quality Reviews (Proposed SQMS 2)
- Proposed Statement on Auditing Standards (SAS) Quality Management for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards (Proposed QM SAS)
The ASB is interested in feedback and, as a result of feedback, changes to the proposal will be considered. It is vitally important for firms to respond to the proposal for the ASB to accomplish its objective and to allow the ASB to effectively evaluate the impact of the proposed standards on firms of all sizes.
The deadline to submit feedback to the ASB is August 31, 2021. AICPA highly encourages all firms to submit their feedback to the ASB at CommentLetters@aicpa-cima.com by the deadline.
