 Resources are needed to support other components, for

QUALITY MANAGEMENT example:

(a) Technological resources
What is ISQM1 (International Standards on Quality (b) Human resources
Management 1)? (c) Intellectual resources
 More proactive and tailored approach to managing quality 7. Information and communication - Enables operation of
 Design, implement and operate a system of quality other components.
management (SOQM)  Information must be communicated to firm’s
 Promotes integrating quality management into the culture personnel and engagement teams and the nature,
of the firm, the firm’s strategy, operational activities, and timing and extent of information is sufficient to
business processes. enable them to understand and carry out their
 Requires the firm to design, implement and operate a assigned responsibilities relating to performance of
SOQM with due consideration to the eight components of activities within the system of quality management or
quality management to manage the quality of engagements.
engagements performed by the firm. The firm’s SOQM 8. Monitoring and remediation process - A process
creates an environment that enables and supports established by the firm as part of the SOQM
engagement teams in performing quality engagements.  The process that:
o Provides the firm with relevant, reliable, and
What are the eight components of quality management? timely information about the design,
1. The firm’s risk assessment process - A process established implementation, and operation of the SOQM
by the firm as part of the SOQM. o Addresses taking appropriate actions to respond
 The process of the firm is required to follow in to deficiencies such that deficiencies are
implementing the risk-based approach to quality remediated on a timely basis.
management. The monitoring and remediation process monitors the entire SOQM,
 Consists of establishing quality objectives, and therefore the monitoring activities are undertaken for all the
identifying and assessing quality risks to the components of the SOQM (including the risk assessment
_

achievement of the quality objectives and designing process).

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and implementing responses to address the assessed

quality risks. What are Quality Objectives?
2. Governance and leadership - Establishes the environment Quality objectives are measurable goals relevant to enhancing the
in which the SOQM operates. quality of services that would lead to client satisfaction and are
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 Firm’s culture, leadership responsibility, and consistent with the firm’s quality policy. ISQM 1 requires the firm to
accountability, the firm’s organizational structure, establish a quality objective that “The firm demonstrates a
assignment of roles and responsibilities, and commitment to quality through a culture that exists throughout the
resource planning and allocation. firm.” It further addresses the need for the culture to recognize and
3. Relevant ethical requirements - A component fundamental reinforce “the importance of quality in the firm’s strategic decisions
to engagement performance. and actions, including the firm’s financial and operational priorities.”
 Fulfilling relevant ethical requirements by the firm Accordingly, the firm’s strategy, decisions, goals, and resource
and its personnel. management needs to reflect a commitment to quality.
 Relevant ethical requirements to the extent that they
apply to others external to the firm There are no quality objectives for the components: the firm’s risk
4. Acceptance and continuance of client relationships and assessment process and the monitoring and remediation process
specific engagements - A component fundamental to because these components are processes, and ISQM 1 sets out
engagement performance. specific requirements of how these processes need to be applied. The
 Firm’s judgments about whether to accept or continue quality objectives in each of the six components aid the firm in
a client relationship or specific engagement. properly identifying and assessing quality risks because the quality
5. Engagement performance - A component fundamental to objectives focus the firm more specifically on what needs to be
engagement performance. achieved and what could go wrong in achieving the quality
 Firm’s actions to promote and support the consistent objectives.
performance of quality engagements
ISQM 1 includes the objective of the firm in managing quality, which
 How the firm supports engagement teams in
is - to design, implement and operate a system of quality
exercising professional judgment and, when
management (SOQM). Like any system of internal control, the SOQM
applicable to the nature and circumstances of the
needs to have a purpose. The purpose is important for designing the
engagement, exercising professional skepticism
SOQM and determining whether the SOQM is effective (i.e., whether
6. Resources - Enables operation of other components
it achieved its purpose). Therefore, paragraph 14 of ISQM 1 includes
 Obtaining, developing, using, maintaining, allocating, and both the objective of the firm and the objective of the SOQM.
assigning resources in a timely manner to enable the
design, implementation, and operation of the SOQM.
What is Quality Risk? ISQM 2 (Engagement Quality Reviews) deals with
These are risks that could adversely affect the achievement of the a. The appointment and eligibility of the engagement quality
quality objectives. However, not all risks are considered quality risks reviewer; and
in ISQM 1 because it is not reasonable or practicable for the firm to b. The engagement quality reviewer’s responsibilities
identify and assess every possible risk and to design and implement relating to the performance and documentation of an
responses for every risk. engagement quality review

ISQM 1 aims to focus the firm on risks that have the greatest impact What is an engagement quality review?
on achieving the quality objectives so that those risks are An engagement quality review is an objective evaluation of the
appropriately addressed by the firm. The definition of quality risk in significant judgments made by the engagement team and the
ISQM 1 includes a threshold for what risks are considered quality conclusions reached thereon. The engagement quality reviewer’s
risks. evaluation of significant judgments is performed in the context of
professional standards and applicable legal and regulatory
A risk qualifies as a quality risk when it meets both criteria in the requirements. However, an engagement quality review is not
definition: intended to be an evaluation of whether the entire engagement
• The risk has a reasonable possibility of occurring. complies with professional standards and applicable legal and
• The risk has a reasonable possibility of individually, or in regulatory requirements or with the firm’s policies or procedures.
combination with other risks, adversely affecting the
achievement of one or more quality objectives Who is an engagement quality reviewer?
Engagement quality reviewer – is a partner, other individuals in the
In identifying a quality risk, think about the conditions, events, firm, or an external individual, appointed by the firm to perform the
circumstances, actions, or inaction that may have an adverse impact engagement quality review.
on your firm’s ability to achieve its quality objectives. Take, for
example, a quality objective related to governance and leadership. What are the qualifications of an engagement quality
reviewer?
Other requirements of ISQM1 a. Has the competence and capabilities, including sufficient
The other requirements in ISQM 1 that address specific topics in time and the appropriate authority to perform the
addition to the eight components deal with: engagement quality review;
_

 Assigning responsibilities related to the SOQM; b. Complies with relevant ethical requirements, including in
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 Specified responses that the firm is required to design and relation to threats to objectivity and independence of the
implement; engagement quality reviewer; and
 Circumstances when the firm belongs to a network and c. Complies with provisions of law and regulation, if any, that
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uses network requirements or network services in its are relevant to the eligibility of the engagement quality
SOQM; reviewer. (Ref: Para. A16)
 The annual evaluation of the SOQM by leadership, and
leadership’s performance evaluations; and Matters that the firm may consider in determining that an individual
 Documentation. has the necessary competence to perform an engagement quality
The firm, regardless of its size, is required to comply with ISQM 1, review include:
and if applicable, ISQM 2. Engagement teams performing audits of  An understanding of professional standards and applicable
financial statements are required to comply with ISA 220 (Revised). legal and regulatory requirements and the firm’s policies
For some aspects of the SOQM, a smaller firm may determine that or procedures relevant to the engagement;
there is no need to establish firm-wide responses, and the firm may  Knowledge of the entity’s industry;
instead design and implement responses that operate concurrently  An understanding of, and experience relevant to,
with the engagement level quality management. engagements of a similar nature and complexity; and
This means that by December 15, 2022, the firm is expected to: (a)
Establish the quality objectives, identify and assess the quality risks,
 An understanding of the responsibilities of the
engagement quality reviewer in performing and
and design and implement the responses; and (b) Design and documenting the engagement quality review, which may
implement the monitoring activities. The operation of the responses be attained or enhanced by receiving relevant training
and monitoring activities is only required to commence from from the firm.
December 15, 2022, onwards. Early adoption of ISQM 1 is permitted;
however, the firm is required to adopt all three quality management
standards at the same time.