june2021 - 7

FEATURE
responsibility and accountability
for the system of quality to the
firm's CEO, managing partner, or
equivalent. In addition, the firm
is required to assign the following
to designated individuals: a)
operational responsibility for the
system of quality management; b)
operational responsibility for the
specific aspects of the system of
quality management,
including
compliance with independence
requirements and the monitoring
and remediation process.
Resources: The current standard
only addresses human resources;
the proposed standard expands to
all resources that the firm needs,
such as:
* Technology
* Intellectual resources (example:
firms' methodology, templates,
tools, etc.)
* Human resources (including component
auditors external to the firm)
The proposed standard focuses
on what resources are needed, how
they are used and maintained, and
whether they are appropriate.
Information and Communication
This is a new component under
the proposed standard to address
the lack of guidance currently on
this matter. The proposed standard
underscores the importance of a
continuous flow of information
and communication by linking the
exchange of information to the
firm's culture to be driven by top
leadership throughout the firm.
The standard requires that the firm
establish an information system
to identify, capture, process, and
maintain information.
Both internal and external
communication is dealt with in
the standard. From an internal
perspective, it reinforces the need
for robust two-way communication
throughout the firm. From an
external perspective, the standard
reinforces a critical public interest
issue, which encourages firms to
be transparent to external parties
about their quality management
systems in a relevant, innovative,
and proactive manner. The standard
requires firms to establish policies
and procedures that address when
communications with external
parties are appropriate.
Monitoring and Remediation
The proposed standard
shifts
the focus from engagement level
monitoring to monitoring the entire
system of quality management. The
standard requires firms to inspect
completed engagements and for
engagement partners to be inspected
on a cyclical basis. The firm identifies
its inspection criteria, including
how often to select completed
engagements, which completed
engagements to select, which
engagement partners to select, and
how frequently to select based on its
risk management criteria.
The proposed standard also
includes requirements for evaluating
findings and identifying deficiencies,
and evaluating the severity and
persuasiveness of the deficiencies.
This includes a new requirement
to investigate the root cause of the
identified deficiencies.
ENGAGEMENT QUALITY
REVIEWS - SQMS NO. 2
The proposed standard includes
separate guidelines on policies and
procedures addressing the appointment
and eligibility of engagement
quality reviews. The proposed standard
also contains the engagement
partner's responsibilities relating
to the engagement quality review,
focusing on how the engagement
partner and the engagement team
interact with the engagement
quality reviewer. Having a separate
standard in place emphasizes the
importance of engagement quality
review and provides a mechanism
to differentiate the responsibilities
of the firm and the engagement
quality reviewer more clearly. The
engagement quality reviewer is acting
on behalf of the firm, and the
objective of the engagement quality
reviewer is the firm's objective as
a whole.
The proposed standard
discusses the appointment and
eligibility of engagement quality
reviews, including the individuals
within the firm who should appoint
appropriate quality reviewers for
engagements, the qualifications
of the reviewer, sufficient time for
an appropriate review, etc. The
engagement partner is precluded
from dating the engagement report
before receiving notification from
the engagement quality reviewer.
The standard also provides guidance
on the documentation and
timing of the review.
QUALITY MANAGEMENT FOR
AN ENGAGEMENT CONDUCTED
IN ACCORDANCE WITH GENERALLY
ACCEPTED AUDITING
STANDARDS - QM SAS
The proposed standard addresses
public interest considerations
through proactive management of
quality at the engagement level,
emphasizes
professional skepticism, enhanced
audit documentation, and the need
for more robust communications.
QM SAS addresses how the engagement
partner leverages the firms'
systems and manages quality at the
engagement level.
The proposed SAS clarifies that
the engagement partner has the
overall responsibility for managing
and achieving quality. This makes
the engagement partner responsible
and accountable for compliance
with the requirements and adherence
to the quality standards set by
the firm. One way the engagement
partner fulfills the responsibilities
is through involvement in the audit
throughout the engagement, as it
is fundamental to the engagement
leadership to achieve higher quality.
OTHER MATTERS -
NETWORKS
The proposed standard focuses on
reinforcing the firm's responsibility
for its system of quality management
even though it may be part
of a network. Each firm has its own
responsibility to design and implement
quality management that is
unique to the firm.
EFFECTIVE DATES:
* SQMS No 1 would be required to
be designed and implemented by
December 15, 2023
* SQMS No 2 would be effective
for audits or reviews of financial
statements for periods beginning on
or after December 15, 2023
* QM SAS would be effective for
engagement s conduc ted i n
accordance with GAAS for periods
beginning on or after December
15, 2023.
WHAT CAN FIRMS DO NOW?
* Become familiar with the proposed
standards
the importance of
* Develop an implementation plan
* Prepare a comment letter on the
exposure draft and submit to AICPA
before Aug. 31, 2021. https://tinyurl.
com/z2fv8rzs
* Design and implement the system of
quality management so that it's fully
operational on December 15, 2023
* Perform engagement quality reviews
in accordance with SQMS No. 2
* Plan to apply QM SAS for engagements
starting in 2024
* Develop a process for an annual
evaluation of the system of quality
management ■
Sibi Thomas, CPA, CFE, CGMA, is an
audit partner at Marks Paneth LLP. Sibi
plans, coordinates, and conducts audits of
nonprofit organizations. Thomas can be
reached at sthomas@markspaneth.com.
JUNE 2021 ■ www.CPAPracticeAdvisor.com
7
https://tinyurl.com/z2fv8rzs https://tinyurl.com/z2fv8rzs http://www.CPAPracticeAdvisor.com
june2021

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