Quality Management

The AASB decided to conduct additional consultations to assist it in making an informed decision about the scope of proposed Canadian Standard on Quality Management (CSQM) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements. Staff will conduct these consultations in the spring and early summer of 2020.

The AASB provided input to the IAASB members from Canada on issues related to the IAASB’s project to revise standards for quality management at the firm and engagement level, including engagement quality reviews. The Exposure Drafts included:

• proposed International Standard on Quality Management (ISQM) (formerly International Standard on Quality Control) 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; and
• proposed ISA 220 (Revised), Quality Management for an Audit of Financial Statements.

Issues discussed related to ISQM 1 included: 

• how the standard should address quality risk considerations;
• whether responses to quality risks should be included in one section versus within each component; and
• the factors to be considered in determining an appropriate cyclical basis for selecting completed engagements for inspection. 

Issues discussed related to ISQM 2 included:

• whether the objective is sufficiently outcome based;
• how the firm should identify engagements that should be subject to an engagement quality review; and

• the cooling-off period of the engagement quality reviewer.

Issues discussed related to ISA 220 (Revised) included:

• whether the definition of engagem

The AASB provided input to the IAASB members from Canada on issues related to the feedback received on the IAASB’s Exposure Drafts for quality management at the firm and engagement level, including engagement quality reviews. The Exposure Drafts included:

• proposed International Standard on Quality Management (ISQM) (formerly International Standard on Quality Control) 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; and
• proposed ISA 220 (Revised), Quality Management for an Audit of Financial Statements.

The AASB discussed the following key issues:

• whether the IAASB should issue a survey and conduct additional outreach on the possibility of developing a separate quality management standard for related service engagements;
• developing higher-level quality objectives to enhance scalability in proposed ISQM 1, adding risk considerations and clarifying required responses to assessed risks;
• removing the concept of entities with “significant public interest” in proposed ISQM 2; and
• including component auditors in the definition of engagement team in proposed ISA 220 and;
• clarifying the requirements in proposed ISA 220 that must be performed by the engagement partner and those where other members of the engagement team can assist the engagement partner.

The AASB discussed its draft response letters to the IAASB’s Exposure Drafts for “Quality Management at the Firm and Engagement Level, Including Engagement Quality Reviews,” which includes:

• 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;
• proposed ISQM 2, Engagement Quality Reviews; and
• proposed ISA 220 (Revised), Quality Management for an Audit of Financial Statements.

The Chair and Director will review the final letters prior to submission.

The AASB agreed to perform further consultations with stakeholders on the proposed scope of Canadian Standard on Quality Management (CSQM) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements, in the fall of 2019.

The AASB discussed its draft responses to the IAASB’s “Exposure Draft for Quality Management at the Firm and Engagement Level, Including Engagement Quality Reviews” which includes:

• 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;
• proposed ISQM 2, Engagement Quality Reviews; and
• proposed ISA 220 (Revised), Quality Management for an Audit of Financial Statements.

The AASB will review draft response letters at its conference call on June 25, 2019. The Chair and Director will review the final responses before submission.

The AASB unanimously approved the exposure draft of proposed Canadian Standard on Quality Management (CSQM) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements; CSQM 2, Engagement Quality Reviews; and CAS 220, Quality Management for an Audit of Financial Statements. The exposure draft is based on the International Auditing and Assurance Standards Board exposure draft of proposed International Standard on Quality Management (ISQM) 1, ISQM 2, and International Standard on Auditing (ISA) 220. The exposure draft for CSQM 1 proposes to adopt the same scope as ISQM 1. This would be a significant change in Canada because the current Canadian standard does not apply to related services engagements such as compilation and agreed-upon procedures engagements. The Board expects to issue the exposure draft in late March 2019, with a comment deadline of June 7, 2019.

The AASB provided input to the CPA Canada nominee on the International Auditing and Assurance Standards Board (IAASB) about issues related to the IAASB’s project to adopt:

• proposed International Standard on Quality Management (ISQM) (formerly International Standard on Quality Control) 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; and
• proposed International Standard on Auditing (ISA) 220, Quality Management for an Audit of Financial Statements.

The IAASB is expected to approve the exposure drafts of ISQM 1, ISQM 2, and ISA 220 at its December 2018 meeting. The AASB reviewed a draft Canadian exposure draft that it expects to approve in January 2019.

The AASB discussed Canadian issues related to the IAASB’s project to revise International Standard on Quality Control (ISQC) 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements, including the proposed scope of the Canadian equivalent standard.

AASB Decision Summary — September 13-14, 2018

The AASB provided input to the CPA Canada nominee on the International Auditing and Assurance Standards Board (IAASB) on issues related to the IAASB’s project to:

• revise International Standard on Quality Control (ISQC) 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements, and International Standard on Auditing (ISA) 220, Quality Control for an Audit of Financial Statements, including the:
  
  • scalability of requirements and application material;
  • interrelationship of components within the system of quality management; and
  • concept of public interest, professional skepticism and professional judgment; and
• develop a new standard, ISQC 2, Engagement Quality Review, including:
  
  • the objective of the standard; and
  • whether engagement quality reviews should be required for entities with significant public interest.

The IAASB is expected to approve exposure drafts of ISQC 1, ISQC 2 and ISA 220 in December 2018. The AASB would approve Canadian exposure drafts shortly thereafter.

The Board provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to revise International Standard on Quality Control (ISQC) 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements, and ISA 220, Quality Control for an Audit of Financial Statements, including:

• the firm’s risk assessment process and how it is applied to the components of the firm’s system of quality management;
• the monitoring and remediation process, including how practitioners from smaller firms could implement the requirements;
• the proposed ordering of components in the standard;
• definitions of engagement partner and engagement team;
• leadership responsibilities, including need for the engagement partner to be actively involved in the engagement; and
• engagement performance, including direction, supervision and review.

The IAASB is expected to approve an exposure draft of ISQC 1 in September 2018 and ISA 220 in December 2018. The Board would approve Canadian exposure drafts shortly thereafter. The Board will continue to discuss these and other issues at future meetings.

The Board discussed the International Auditing and Assurance Standards Board’s (IAASB) project to revise International Standard on Quality Control (ISQC) 1, Quality Control for Firms That Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements. The Board agreed that staff would perform limited consultations prior to the release of the IAASB’s exposure draft, which is expected in the fall of 2018. These limited consultations will help the Board identify Canadian-specific issues related to the IAASB’s proposals.

The Board provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to revise International Standard on Quality Control (ISQC) 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements. Key issues discussed included:

• the components of firm culture that impact quality;
• the proposed ordering of components in the standard;
• the monitoring and remediation process, including how practitioners from smaller firms could implement the requirements;
• requirements addressing the firm’s technology, including whether technology developed by the firm or obtained from an external provider contributes to quality of services the firm provides; and
• the overall length of the standard, including whether certain appendix material could be removed.

The IAASB is expected to approve an exposure draft of ISQC 1 in September 2018. The Board will approve a Canadian exposure draft shortly thereafter. The Board also discussed whether it should conduct targeted stakeholder outreach before the exposure draft is released to identify and discuss Canadian specific issues. The Board will continue to discuss these and other issues at future meetings.

The Board provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to revise ISQC 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements and ISA 220, Quality Control for an Audit of Financial Statements.

Key issues discussed relating to ISQC 1 included:

• the scalability of the standard;
• the overall length of the standard, including whether certain application material could be removed;
• responsibilities for independence; and
• the robustness of the proposed changes and whether they address key public interest issues identified in the IAASB’s Invitation to Comment, “Enhancing Audit Quality in the Public Interest – A Focus on Professional Skepticism, Quality Control and Group Audits.”

Key issues discussed relating to ISA 220 included:

• the proposed objective of the standard;
• requirements related to engagement acceptance and continuance;
• requirements related to use of resources; and
• requirements regarding the sufficient and appropriate involvement of the engagement partner.

The Board provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to revise ISQC 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements. Key issues discussed included:

• whether to retain the requirement to have an engagement quality control review for all audits of financial statements of listed entities, or whether such reviews should be required only for audits of general purpose financial statements of listed entities;
• whether the proposed requirement for the firm to establish policies and procedures to select other engagements to have an engagement quality control review will result in the appropriate selection of high-risk engagements; and
• the eligibility and appointment of the engagement quality control reviewer, including specific considerations for small and medium-sized practitioners.

The Board provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to revise ISQC 1, International Standard on Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements, and ISA 220, Quality Control for an Audit of Financial Statements. Key issues discussed relating to ISQC 1 included the:

• need for further considerations for small and medium-sized practitioners in the proposed revisions;
• potential challenge of setting out the public interest role of firms in the standard;
• how the proposed components of quality management and, in particular, the quality management process, would be applied in practice; and
• need for a more a principles-based approach in making revisions.

Key issues discussed relating to ISA 220 included the:

• interaction of ISA 220 with ISQC 1 and other relevant ISAs;
• objective of the auditor under ISA 220;
• four-step approach proposed by the IAASB Task Force in addressing quality management at the engagement level; and
• impact of a proposed requirement regarding information sharing and communication between the firm and the engagement team.

The AASB provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to revise ISQC 1, International Standard on Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements, and ISA 220, Quality Control for an Audit of Financial Statements. Key issues discussed included:

• considerations for small and medium-sized practitioners;
• overlap with topics addressed in the International Ethics Standards Board for Accountants’ Code of Ethics;
• the authority and eligibility of the engagement quality control reviewer; and
• the firm’s approach to selecting the engagement quality control reviewer.

The AASB provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project proposal addressing quality control and group audits. The AASB expressed concerns with the lack of detail in the project proposal related to group audits. However, the AASB supports these projects and intends to set up two advisory groups to assist staff and provide input on Canadian issues.