SMSF Auditors Alert – Quality assurance standards commence 15 December 2022

Auditing Standard ASQM 1 Quality Management for Firms that Perform Audits or Reviews of Financial Reports and Other Financial Information, or Other Assurance or Related Services Engagements comes into effect from 15 December 2022.

‘ASQM 1 introduces a quality management approach that is focused on proactively identifying and responding to risks to quality. The new quality management standard improves the robustness of firms’ systems of quality management (e.g., enhanced requirements and focus on governance and leadership, monitoring and remediation, and circumstances when a firm belongs to a network). The essence of the new approach is to focus firms’ attention on risks that may have an impact on engagement quality. The new approach requires a firm to customise the design, implementation and operation of its system of quality management based on the nature and circumstances of the firm and the engagements it performs.’

This standard replaces ASQC 1 and aligns Australia with the international quality management standard, ISQM 1. ASQM 1 shifts away from ‘quality control’ to a ‘quality management,’ risk-based approach and should be read in conjunction with the ‘relevant ethical requirements’ which would include APES 110 and ASIC Class Order CO 12/1687.

ASQM 1 applies to all firms, regardless of their size, who provide audit services. The standard is scalable to ensure that it can be applied across all audit firms. This means that the standard will apply to large audit firms as well as smaller firms who only conduct a small number of audits each year.

The system of quality management will operate in a continual and iterative manner and in response to changes in the nature and circumstances applicable to the firm and its engagements. Under ASQM 1, the system of quality management is required to address eight components (ASQM 1, para 6):

a) The firm’s risk assessment process.
b) Governance and leadership.
c) Relevant ethical requirements.
d) Acceptance and continuance of client relationships and specific engagements.
e) Engagement performance.
f) Resources.
g) Information and communication; and
h) The monitoring and remediation process.

An SMSF firm’s quality control manual should include references to practical systems that relate to the above areas. It should also include a description of those policies and procedures that provide the audit firm with reasonable assurance that the practice and its staff are maintaining a suitable level of independence.

Systems of quality management in compliance with this ASQM are required to be designed and implemented by 15 December 2022. An evaluation of the system of quality management is required within one year following 15 December 2022.

Reference should also be made to new standard ASQM 2 Engagement Quality Reviews.

Engagements that may require a quality review are incorporated into ASQM 1, whereas ASQM 2 deals with the appointment and eligibility of the engagement quality reviewer, the quality reviewer’s role and responsibilities relating to the performance and documentation of the engagement quality review.

This standard applies to:
a) Audits and reviews of a financial report for periods beginning on or after 15 December 2022; and
b) Other assurance and related services engagements beginning on or after 15 December 2022.

For further details, refer to the ASQM1 and ASQM 2 auditing standards, and the respective ‘Basis Conclusion’ and ‘Explanatory Statement’ documents available on the AuASB website.

Opinion piece written by
Tracey Scotchbrook,
Policy Manager
SMSF Association