Scope of this Auditing Standard
This Australian Standard on Quality Management (ASQM) deals with a firm’s responsibilities to design, implement and operate a system of quality management for audits or reviews of financial reports and other financial information, or other assurance or related services engagements.
Engagement quality reviews form part of the firm’s system of quality management and:
- This ASQM deals with the firm’s responsibility to establish policies or procedures addressing engagements that are required to be subject to engagement quality reviews.
- ASQM 2 deals with the appointment and eligibility of the engagement quality reviewer, and the performance and documentation of the engagement quality review.
Other pronouncements of the Australian Auditing and Assurance Standards Board (AUASB):
- Are premised on the basis that the firm is subject to the ASQMs or to national requirements that are at least as demanding; and
- Include requirements for engagement partners and other engagement team members regarding quality management at the engagement level. For example, ASA 220 deals with the specific responsibilities of the auditor regarding quality management at the engagement level for an audit of a financial report and the related responsibilities of the engagement partner. (Ref: Para. A1)
See, for example, Australian Standard on Auditing (ASA) 220, Quality Management for an Audit of a Financial Report and Other Historical Financial Information, paragraph 3.
This ASQM is to be read in conjunction with relevant ethical requirements. Relevant ethical requirements are defined in ASA 102.[*] Law, regulation or relevant ethical requirements may establish responsibilities for the firm’s management of quality beyond those described in this ASQM (Ref: Para. A2).
See ASA 102 Compliance with Ethical Requirements when Performing Audits, Reviews and Other Assurance Engagements.
This ASQM does not address the responsibilities of the firm that may exist in legislation, regulation or otherwise in connection with, for example, independence or other assurance related requirements of the Corporations Act 2001.
This ASQM applies to all firms performing audits or reviews of financial reports and other financial information, or other assurance or related services engagements (i.e., if the firm performs any of these engagements, this ASQM applies and the system of quality management that is established in accordance with the requirements of this ASQM enables the consistent performance by the firm of all such engagements).
The Firm’s System of Quality Management
A system of quality management operates in a continual and iterative manner and is responsive to changes in the nature and circumstances of the firm and its engagements. It also does not operate in a linear manner. However, for the purposes of this ASQM, a system of quality management addresses the following eight components: (Ref: Para. A3)
- The firm’s risk assessment process;
- Governance and leadership;
- Relevant ethical requirements;
- Acceptance and continuance of client relationships and specific engagements;
- Engagement performance;
- Information and communication; and
- The monitoring and remediation process.
This ASQM requires the firm to apply a risk-based approach in designing, implementing and operating the components of the system of quality management in an interconnected and coordinated manner such that the firm proactively manages the quality of engagements performed by the firm. (Ref: Para. A4)
The risk-based approach is embedded in the requirements of this ASQM through:
- Establishing quality objectives. The quality objectives established by the firm consist of objectives in relation to the components of the system of quality management that are to be achieved by the firm. The firm is required to establish the quality objectives specified by this ASQM and any additional quality objectives considered necessary by the firm to achieve the objectives of the system of quality management.
- Identifying and assessing risks to the achievement of the quality objectives (referred to in this standard as quality risks). The firm is required to identify and assess quality risks to provide a basis for the design and implementation of responses.
- Designing and implementing responses to address the quality risks. The nature, timing and extent of the firm’s responses to address the quality risks are based on and are responsive to the reasons for the assessments given to the quality risks.
This ASQM requires that, at least annually, the individual(s) assigned ultimate responsibility and accountability for the system of quality management, on behalf of the firm, evaluates the system of quality management and concludes whether the system of quality management provides the firm with reasonable assurance that the objectives of the system, stated in paragraph 14(a) and (b), are being achieved. (Ref: Para. A5)
In applying a risk-based approach, the firm is required to take into account:
- The nature and circumstances of the firm; and
- The nature and circumstances of the engagements performed by the firm.
Accordingly, the design of the firm’s system of quality management, in particular the complexity and formality of the system, will vary. For example, a firm that performs different types of engagements for a wide variety of entities, including audits of financial reports of listed entities, will likely need to have a more complex and formalised system of quality management and supporting documentation, than a firm that performs only reviews of financial reports or agreed-upon procedures engagements.
Networks and Service Providers
This ASQM addresses the firm’s responsibilities when the firm:
- Belongs to a network, and the firm complies with network requirements or uses network services in the system of quality management or in the performance of engagements; or
- Uses resources from a service provider in the system of quality management or in the performance of engagements.
Even when the firm complies with network requirements or uses network services or resources from a service provider, the firm is responsible for its system of quality management.
Authority of this ASQM
- Requirements designed to enable the firm to meet the objective in paragraph 14; (Ref: Para. A7)
- Related guidance in the form of application and other explanatory material; (Ref: Para. A8)
- Introductory material that provides context relevant to a proper understanding of this ASQM; and
- Definitions. (Ref: Para. A9)