The International Auditing and Assurance Standards Board (IAASB) has issued Quality Management Standards and has also revised the related International Standard on Auditing (i.e. ISA 220, Quality Control for an Audit of Financial Statements). The Quality Management Standards published by IAASB include:

1. ISQM 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagement ; and
2. ISQM 2, Engagement Quality Reviews.

ISQM1 and ISQM2 will replace the International Standard on Quality Control (ISQC) 1. The new Quality Management Standards and related ISA 220 (Revised) will impact the audit firms as well as individual audit and assurance engagements.

• ISQM 1 requires a firm to design, implement and operate a risk-based system of quality management for audits or reviews of financial statements, or other assurance or related services engagements.
• ISQM 2 deals with the appointment and eligibility of the engagement quality reviewer, and the engagement quality reviewer’s responsibilities relating to the performance and documentation of an engagement quality review.
• ISA 220 (Revised) specifies the specific responsibilities of the auditor regarding quality management at the engagement level for an audit of financial statements and the related responsibilities of the engagement partner.

In accordance with the IAASB published Quality Management Standards, firms are required to have systems of quality management designed and implemented in accordance with these new standards by December 15, 2022. 

ISQM 1, ISQM 2, and ISA 220 (Revised) are attached for your study and input. While a Snapshot of the Quality Management Standards and a list of supporting publications and resources developed by the IAASB and the Institute are provided in the Appendix to this Circular.

The Auditing Standards & Ethics Committee’s due process for adoption of Quality Management Standards

The Auditing Standards & Ethics Committee (the Committee) of the Institute has initiated due process for recommending the adoption of the Quality Management Standards. Consequent to their adoption, ISQM1 and ISQM2 will replace the ISQC 1, the extant standard that deals with the practicing firm’s responsibilities for its systems of quality control.

Your input is of foremost importance in the due process for the adoption of the Quality Management Standards and related ISA 220 (Revised). You are requested to send your comments and input to the Technical Services Department at dtscomments@icap.org.pk latest by June 30, 2022.

The Committee has also planned to conduct consultative sessions with the members on the Quality Management Standards. Details of these sessions will be shared in due course.

Circular 2 – Invitation to comment on Quality Management Standards