june2021 - 6

FEATURE
AICPA Proposes New Quality
Management Standards for Firms
By Sibi Thomas, CPA, CFE, CGMA
The American Institute of Certified Public
Accountants has proposed three new
standards on quality management for
CPA firms at the firm and engagement
levels. The proposed standards bring
essential changes to the way firms
oversee the quality of the attest practice.
The three proposed standards are as
follows:
* Proposed Statement on Quality Management
Standards, A Firm's System
of Quality Management (SQMS No. 1)
* Proposed Statement on Qual ity
Management Standards, Engagement
Quality Reviews (SQMS No. 2)
* Proposed Statement on Audit ing
Standards Quality Management for an
Engagement Conducted in Accordance
with Generally Accepted Auditing
Standards (QM SAS)
According to the AICPA, the proposed
standards update the existing
standards for advances in technology
and replace the existing " one-sizefits-all "
model with a more scalable
approach to firms of all sizes. These
proposed standards are the most significant
changes since 2006 on quality
management issued by AICPA. Audit
quality is the number one concern and
priority for most audit professionals,
and these proposed standards are
intended to improve audit quality.
The Auditing Standards Board
(ASB) has been following the International
Auditing and Assurance
Standards Board's (IAASB) project on
audit quality management by providing
input throughout the process. As a
result of this project, IAASB issued its
quality management standards back in
December 2020, similar to the AICPA's
proposed standards. It is ASB's strategy
to converge its proposed standards
with those of the IAASB because the
issues that led IAASB to revise its
standards are equally important in the
United States. The following article is
summarized based on the explanatory
memorandum published by the AICPA
and used for educational use only.
A NEW APPROACH TO THE
FIRM'S SYSTEM OF QUALITY
MANAGEMENT - SQMS NO. 1
The system of quality management
at a CPA firm is designed to achieve
two primary objectives: a) The firm
and its professionals fulfill their
responsibilities under professional
standards and applicable legal and
regulatory requirements, and conduct
engagements with such standards and
requirements; b) Engagement reports
issued by the firm are appropriate
in the circumstances. An effective
quality management system should
6 JUNE 2021 ■ www.CPAPracticeAdvisor.com
achieve these two objectives:
The proposed standards emphasize
a risk-based approach with revised
quality management components,
enhanced monitoring process, and
more robust leadership and governance
requirements.
WHAT IS NEW UNDER THE
PROPOSED STANDARDS
The new or revised components of
quality management under the proposed
standards include the following:
Risk Assessment Process
Firms are required to follow the process
proposed under the new standards
in setting up a risk-based approach to
quality management. Risk assessment
is a three-step process:
* Establish quality objectives for each of
the components of quality management
prescribed by ASB except monitoring
and remediation
* Identify and assess risks to the achievement
of the quality objectives
* Design and implement responses to
address the quality risks
The risk assessment process is
essential to ensure the eight components
of quality management are
established and working appropriately
to achieve the overall quality management
objectives. It is a continuous
process and unique to each firm for
improving and maintaining quality
management within the firm.
Governance and Leadership: The
proposed standards provide targeted
enhancements to the existing standard
on governance and leadership,
precisely the " tone at the top " and the
importance of quality in the firm's
strategic decisions and actions. The
firm is required to assign ultimate
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june2021

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