Proposed Major Changes to Quality Control Standards
Auditing Standards Board
The ASB recently issued an exposure draft of the following three interrelated quality control standards that are intended to make important changes to how firms manage engagement quality in their practices: (1) Proposed Statements on Quality Management Standards (SQMS) 1, A Firm's System of Quality Management; (2) Proposed Statements on Quality Management Standards (SQMS) 2, Engagement Quality Reviews; and (3) Proposed Statement on Auditing Standards, Quality Management for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards (QM SAS).
If issued as final, proposed SQMS 1 will supersede SQCS 8 and the proposed QM SAS will supersede AU-C 220, Quality Control for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards. The comment period for these exposure drafts ends on August 31, 2021. If issued as proposed, firms would be required to design and implement systems of quality management in compliance with proposed SQMS 1 by December 15, 2023, and to perform an evaluation of the system of quality management required by proposed SQMS 1 within one year following December 15, 2023.
SQMS 1 proposes a new risk-based approach for how firms address their responsibility to design, implement, and operate a system of quality management for their accounting and auditing practices. A significant proposed change related to monitoring that would especially affect small firms is that neither engagement team members nor the engagement quality reviewer is permitted to perform inspections of engagements in which they participate.
SQMS 2 would apply to all engagements requiring performance of an engagement quality review. The reviewer requirements are more robust than those in SQCS 8, including the requirement for a two-year “cooling-off period” before a former engagement partner can act as the engagement quality reviewer on a former engagement.
The proposed QM SAS emphasizes the engagement partner's overall responsibility and accountability for managing and achieving quality and how the partner manages quality at the engagement level while leveraging the firm's system of quality management.
Accounting and Review Services Committee
In May 2021, the ARSC deliberated proposed amendments to AR-C 60, General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services, and AR-C 90, Review of Financial Statements, to update those sections based on proposed SQMS 1. The ARSC expects to issue an exposure draft of the proposed SSARS, Quality Management for an Engagement Performed in Accordance with Statement on Standards for Accounting and Review Services, in the fall of 2021.
PPC’s Guide to Quality Control
PPC’s Guide to Quality Control provides a comprehensive approach for designing and implementing a quality control system that complies with all the quality control standards and, at the same time, is practical and cost-effective for firms of all sizes.
PPC’s Guide to Compilation and Review Engagements
PPC’s Guide to Compilation and Review Engagements contains hundreds of practice aids, sample reports, sample disclosures, and financial statements to help you perform your engagements correctly, with maximum efficiency, while complying with professional standards and peer review requirements.
PPC’s Guide to Construction Contractors
PPC’s Guide to Construction Contractors combines discussions of authoritative GAAP, auditing, compilation, review, and consulting requirements with “how-to” advice and specially tailored practice aids to help you provide a wide range of services to construction contractors and comply with quality control and other professional standards.
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