Date posted: 24/06/2022 8 min read

What new quality management standards mean for CAs

CAs in Australia and New Zealand will soon experience some of the largest audit and professional standards changes to quality management in a generation.

In Brief

  • The impacts of revised quality management standards will vary depending on whether firms offer audit or other assurance services.
  • Audit and assurance firms will need to undertake a new tailored process for assessing quality risks within their firm and develop a system of quality management that responds to those risks.
  • To assist its members in audit, CA ANZ has developed a Quality Management Hub for auditors.

Standards setters in Australia and New Zealand have issued revised quality management standards that become effective in December 2022 (audit) and January 2023 (non assurance).

The impacts will vary depending on whether firms offer audit or other assurance services. Audit and assurance firms will need to undertake a new tailored process for assessing quality risks within their firm and develop a system of quality management that responds to those risks.

The standards for non-assurance firms, for example those offering tax or business services, have not changed as significantly. There are, however, modifications to achieve alignment with audit quality management standards where appropriate, and to reflect changes in practice around technology and resources.

CA ANZ reporting and assurance leader Amir Ghandar FCA is positive about this move away from a compliance-based, one-size-fits-all approach.

“The real success here will be the ability for audit practices to tailor these standards in the way that’s most effective for their setting. I really look forward to working with practices and the Auditing and Assurance Standards Board to develop guidance and support needed to help firms to do that.”

Josephine Haste CA, manager, Member Tools and Resources at CA ANZ, predicts a smooth transition for CA ANZ members implementing the changes to non-assurance quality management standards.

As Haste puts it: “Extant requirements and application material have been retained to minimise disruption and enable the firm’s existing policies and procedures to be used where appropriate.”

Changes for audit and assurance practices

The changes for audit and assurance include:

  • A risk-based quality management approach replaces the previous quality control approach
  • Assessing the risks within the firm to achieving quality objectives set out in the standards
  • Implementing a system of quality management comprised of ‘responses’ to the identified quality risks
  • Ongoing monitoring and remediation of the quality system.

The new standards require audit firms to document and implement a system of quality management across the firm, adopt a proactive approach to quality management on individual assurance engagements, and a revised engagement process for an engagement quality review partner on individual assurance engagements.

“By far the most significant change is implementing a risk-based system of quality management at the firm level, which firms need to focus on as a priority this year,” says Ghandar.

“This is about having clear accountability within the firm for quality management, but also then involving the whole firm – partners and staff – in conversations to draw out the risks and the most effective responses.”

Changes for non-assurance practices

For non-assurance firms, addressing risk is simpler as the revised standard imbeds the risk assessment into the requirements rather than demanding a more tailored risk assessment.

“This appropriately reflects the inherent risk of non-assurance engagements compared to assurance engagements,” says Haste.

“A significant departure from the audit quality management standards is the removal of the requirement to conduct root cause analysis,” she adds. “The removal of the requirement simplifies the risk analysis process for non-audit firms.”

In a nutshell, changes to the standard for non-assurance practices are:

  • Revised scope to only apply to non-assurance practices of firms and high-level alignment to audit and assurance quality management standards
  • Removal of requirements and application material specific to audit and assurance practices, including changes to terminology to reflect varied outputs from non-assurance engagements
  • The introduction of a new element, Information and Communication, to both align standards and recognise evolving professional practice
  • Human resources expanded to include other resources employed by the practice.

A critical factor to note, says Haste, is that the reissued standard applies only to non-assurance services. High-level alignment of the professional standards’ elements with the components of the audit quality management standards remains.

Where to from here?

To assist its members in audit, CA ANZ has developed a Quality Management Hub for auditors, bringing together guidance and the standards with comprehensive illustrative risk analysis, and pro forma documentation for small and medium firms.

The CA ANZ Hub curates the most useful material from the plethora of guidance material issued by standards setters internationally.

“This is all about giving firms a head-start so they can see what is needed and a helping hand with the documentation required,” says Ghandar.

“If we can get people to do that, then we will have come a long way – the actual requirements and fundamentals are really quite simple.”

For non-assurance firms, the reissued APES 320 standard includes a flow chart to assist practices in determining which quality management standards to comply with depending on the services.


Which standards have actually changed?

Audit

Australia – now New Zealand – now 
Auditing Standard ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports and Other Financial Information, Other Assurance Engagements and Related Services Engagements PES 3 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance Engagements
ASA 220 Quality Control for an Audit of a Financial Report and Other Historical Financial Information ISA (NZ) 220 Quality Control for an Audit of Financial Statements
Australia – December 2022 New Zealand – December 2022
Auditing Standard ASQM 1 Quality Management for Firms that Perform Audits or Reviews of Financial Reports and Other Financial Information, or Other Assurance or Related Services Engagements PES 3 Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements
ASQM 2 Engagement Quality Reviews PES 4 Engagement Quality Reviews
ASA 220 (Revised) Quality Management for an Audit of a Financial Report and Other Historical Financial Information
ISA (NZ) 220 (Revised) Quality Management for an Audit of Financial Statements

Non-assurance firms

Australia – now New Zealand – now
APES 320 Quality Control for Firms
PS-1 Quality Control
Australia – January 2023
New Zealand – 15 December 2022
APES 320 Quality Management for Firms that provide Non-Assurance Services
PS-1 Quality Management

Read more:

Quality Management hub

Toolkits and resources to meet requirements are now available for members.

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