ISQM 1 involves a ‘made-to-measure’ approach to quality management. It requires a system of quality management that is designed to a specific firm. It’s about designing something that’s going to work within the context of your firm. Particularly your people, says Gill Spaul, Director, Audit Quality, for Moore Global.
“Firms are currently made up of human beings,” she says. “Some firms will stay exactly the same with the same people for years, but most firms don’t. People move on, people retire, new people come in. The minute your team dynamic changes, the ways in which you might need to manage quality could potentially change as well.”
Many of the risks to achieving audit quality objectives are to do with people, Spaul explains. For example, how well people understand processes, how committed people are, their level of experience and skills, and how well they work together.
“If you’ve got a static system of quality management, you’ve bought a product and you’ve got a manual sitting on the shelf, and assume everything’s going to run like clockwork, you could potentially end up with a disaster.”
There are no quick fixes when it comes to ISQM 1; it requires some serious thought about the design, implementation and operation of a system of quality management. It should be quite specific, down to the level of each individual on the audit team – such as who will be ethics partner or who has responsibility for monitoring, Spaul explains.
“The first step would be to get a really good understanding of who your people are, who your clients are, the risks that attach to the client base that you have,” Spaul advises. “Then think about what you are trying to achieve in six months’ time or a year’s time, and your longer-term audit quality goals.”
Once you have done that, it is time to sit down with a paper and pen (or a blank document and keyboard) and start articulating those thoughts. Starting with a blank document and trying to identify firm-specific risks can feel like a challenging task. This may be relatively new and might not have been needed for a previous system of quality control. In that case, it’s important to remember that it requires skills that are well within the wheelhouse of auditors.
“It’s easier to have a dispassionate view of the risks that someone else is facing than it is to think about the risks that you’re facing yourself. It’s more immediate, it’s more personal. But you do know how to do it.” A good starting point when it comes to identifying your firm’s audit quality risks is asking: “what keeps me awake at night?”, Spaul explains.
“Somebody asked me what my top skill suggestion would be for someone who wants to be successful at quality management, and my answer was the ability to write in sentences. You need to be able to articulate what you’re thinking, how you feel, what you’re doing, and what you want to do. You need to articulate it in such a way that when you come back to it three weeks later, it still makes sense to you.”
ISQM 1 requires the responsible individual to evaluate a firm’s system of quality management on an annual basis, but for the first year at least, Spaul recommends that it should be revisited more frequently. When establishing a system of quality management for the first time, it’s possible for some things to get overlooked. More frequent evaluation allows firms the chance to identify elements that may have been missed.
“I would have thought that most firms, in the first year after implementation, would want to check it over quarterly, or maybe at the half-year point, just to see if they did forget some things. Because if there’s anything you have missed you might not be in compliance.”
Either way, as the system of quality management is so specifically tailored to the firm, any major changes within that firm, such as personnel changes, should warrant revisiting the system of quality management.
“There might be a point in time at which you want to have a look to make sure everything is still fit for purpose,” says Spaul. “We don’t live in a world that’s frozen in amber – our risks will change, and the system of quality management should reflect that.”
• Sign up for the Essentials CPD update Are you ready for the new ISQMs? on Friday 16 September for more information.
With new quality management standards for audit on the horizon, there is an opportunity for firms of all sizes to supercharge their audits and reap significant knock-on benefits that go beyond ticking the regulatory box
Quality management in audit firms
Resources to help audit firms prepare for new quality management standards ISQM 1, ISQM 2 and ISA 220 (Revised).Read more
Webinar: Quality management in audit firms
Join Gill Spaul and David Smith for the first of a series of quality management webinars, as they discuss the requirements and how firms can be proactive.Watch now
Podcast: How do we measure audit quality?
Anna Draper, Jayne Kerr, Tracy Gordon and Katharine Bagshaw join ICAEW’s Iain Wright to discuss.Listen now