ISQM (UK) 1 is here

What is ISQM 1?

ISQM (UK) 1, or the International Standard on Quality Management 1 (ISQM 1), represents a significant change for audit firms.

ISQM 1 replaced the ISQC (UK) 1 in December 2022. The new standard requires a more proactive approach to identifying and managing 'quality risks' which can result in a firm issuing an incorrect audit report. To achieve this, firms must establish and monitor a System of Quality Management (SOQM) which is more comprehensive than existing audit procedures documentation.

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The BIGGEST challenge for audit firms  
ISQM 1 for Audit Firms

With ICAEW and ACCA starting to assess how firms are complying, it is important to act now.

The biggest challenge for firms is creating and documenting a robust risk assessment to identify and resolve the firm's quality management risks.

Our ISQM 1 pack will save you time and give you reassurance

HAT Group is an established provider of audit methodologies and compliance documentation for audit firms of all sizes. Many firms already rely on our expertise and practical approach to ensure they comply with FRC quality standards.

Our ISQM pack includes:

  • ISQM 1 – What Does it Mean for Me – an on-demand training course, for anyone in your team, explaining the practical implications of the new international standard and the key steps to better quality control, audits or reviews, quality management and IAASB compliance
  • ISQM 1 compliance pack – risk assessment and annual review documentation, guiding you through the key steps to better audit quality and compliance reviews
  • Completed risk assessment for an example audit firm, providing suggestions on common risks, quality management and other assurance on how these audits can be successfully managed
  • Audit Regulatory and ISQM procedure pack - our established procedures pack has been comprehensively updated for ISQM 1 and forms the foundation of your firm's audit policies and procedures and quality control.

The pack is available for £400 plus VAT

Frequently Asked Questions

What action should I be taking now? It is still not too late to comply with ISQM 1 and to implement the new quality management standards and appropriate policies and procedures in time for your next annual audit compliance review or regulatory visit. Our training course will help you understand the key requirements of the new standards and management for firms. You can then identify the quality management risks which may adversely impact the objectives of your SOQM and then determine the actions required to mitigate these risks through your quality management system.

ISQM 2 sets out the requirements for Engagement Quality Reviews (formerly known as EQCRs). However, the standard will generally only affect audits of Public Interest Entities for periods commencing 15 December 2022 onwards. Therefore the impact will be less significant.

ISQM 1 replaces ISQC 1. Both standards aim to ensure your firm has appropriate audit quality standards, policies and procedures to support R.I.s and others to produce effective and compliant audit files and systems of quality management.

Firms must update their approach to quality management to comply with the new international standards by 15 December 2022. This is an effective date and applies to all firms regardless of the number of audit clients, related services or their year-ends. However, if you have missed this deadline it is not too late to introduce the changes required.

ISQC 1 is a reactive standard, requiring firms to act when a significant problem is identified. ISQM 1 is proactive, requiring you to improve your audit quality and perform a risk assess to identify and prevent problems from occurring. This process results in the firm establishing a System of Quality Management (SOQM).

A System of Quality Management (SOQM) is a set of policies and procedures which provide your firm with reasonable assurance that:
  • the firm and its personnel fulfil their responsibilities in accordance with international standards, reviews, quality management and applicable legal and regulatory requirements and conduct engagements in accordance with such standards and requirements
  • engagement reports and financial statements are issued by firms are appropriate in the circumstances.

It is vital to understand the requirements of the standard and determine how you will achieve these Once you understand the key requirements of the standards for international auditing you must identify the quality risks which may adversely impact the objectives of your SOQM and then determine the actions required to mitigate these risks.

What steps are involved in establishing SOQM?

Set quality objectives

The objectives for ISQM 1 standards for most firms include governance and leadership; relevant ethical requirements; acceptance and continuance of engagements; engagement performance, including quality of working papers and financial statements; reliability and effectiveness of resources and service organisation and information and communication, including how the firm’s policies and standards are communicated internally.

Identify quality risks

These are risks that have reasonable possibility of impacting a firm’s achievement of one or more quality objectives. This formal, firm-wide risk assessment must be documented and is one of the key changes introduced by the standard.

Design and implement responses to deal with the risks identified

Many responses will be the same as before and covered by the firm’s tailored audit standards. However, some will be new and may be unique to the firm, for example the scheduling of specific training to deal with an area of weakness identified in the firm’s quality risk assessment.

Monitoring and remediation

A full annual review is required, and monitoring must occur on an ongoing basis to identify deficiencies or previously unidentified risks via audits and reviews. Monitoring may include, but is not limited to, cold file reviews and related services engagements, where it is expected that firms will take a proactive response to weaknesses identified. Where a weakness is identified, root cause analysis should be performed.

Find out here for other ways in which HAT Group can support your firm