Comments Sought on EDs for Quality Management Standards at the Firm and Engagement Level, including Engagement Quality Reviews

ISCA seeks public comment on three interrelated standards that address quality management, namely:

• Proposed Singapore Standard on Quality Management (SSQM) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (previously SSQC 1^[1])

• Proposed SSQM 2, Engagement Quality Reviews

• Proposed Singapore Standard on Auditing (SSA) 220 (Revised), Quality Management for an Audit of Financial Statements

The proposals bring important changes to the way professional accountancy firms are expected to manage quality—for audits, reviews, and other assurance and related services engagements.

The proposed standards include a new proactive risk-based approach to effective quality management systems within firms that establish the foundation for consistent engagement quality.

The proposals are intended to improve engagement quality through:

• Modernizing the standards for an evolving and increasingly complex environment, including addressing the impact of technology, networks, and use of external service providers;

• Increasing firm leadership responsibilities and accountability, and improving firm governance;

• More rigorous monitoring of quality management systems and remediating deficiencies;

• Enhancing the engagement partner’s responsibility for audit engagement leadership and audit quality; and

• Addressing the robustness of engagement quality reviews, including engagement selection, documentation, and performance.

Proposed SSQM 1

SSQM 1, which replaces SSQC 1, deals with the firm’s responsibility for quality through having a system of quality management. Under SSQM 1, firms are required to design a system of quality management to manage the quality of engagements performed by the firm. This shift in focus from quality control to quality management is achieved by incorporating a risk-based approach, i.e., managing risks to quality.

SSQM 1 applies to all firms performing engagements under ISCA’s auditing and assurance standards. This includes audits or reviews of financial statements, other assurance engagements, compilations or agreed-upon procedures engagements.

SSQM 1 consists of eight components that operate in an iterative and integrated manner:

(a) The firm’s risk assessment process

(b) Governance and leadership;

(c) Relevant ethical requirements;

(d) Acceptance and continuance of client relationships and specific engagements;

(e) Engagement performance;

(f) Resources;

(g) Information and communication; and

(h) The monitoring and remediation process.

Proposed SSQM 2

One of the specified responses in SSQM 1 is a requirement for the firm to establish policies or procedures for engagements requiring an engagement quality review (EQR). The requirements have been enhanced from extant SSQC 1 by increasing the focus on selecting engagements based on quality risks. The application material provides guidance on the types of engagements, or qualities of engagements, that may give rise to quality risks where an EQR is an appropriate response to address that risk. For example, the firm can determine that an EQR is an appropriate response to quality risks associated with engagements where there is a high level of complexity or judgment or where issues have been encountered, or entities with public interest or public accountability characteristics.