The SMPC noted that the responsibilities of the engagement partner now exceed those of extant ISA 220. Under extant ISA 220, the engagement team can rely on the firm’s quality control unless there are indications to the contrary. In the Committee’s view, this remains a pragmatic approach.
Based on how the standard is currently being drafted, the proposed International Standard on Quality Management 2 (ISQM 2) is unique as it combines firm wide requirements for policies and procedures and engagement level requirements relating to EQR with the objective of the firm being framed, in part, as the responsibility of the EQ reviewer. Although the IAASB is confident that such an approach is not an issue (since the standard is intended to be outcome-oriented), the SMPC has some concerns over the approach.
The SMPC generally supports the new quality management approach using a risk management lens. However, the Committee also believes that the IAASB needs to consider the cost/benefit of the proposed changes in terms of anticipated quality increase from International Standard on Quality Management 1 (ISQM 1). The SMPC believes that making the standard less complex to apply would go a long way in addressing the practical issues many SMPs would otherwise face and, simultaneously, resolve many of the scalability issues. Specifically by:
The SMPC is concerned that the QM standards' complexity may eventually drive a compliance mindset, especially amongst smaller firms who become subject to proportionately greater documentation burdens to “explain/prove” their compliance. Therefore, it is important for the IAASB to ensure that the final suite of QM standards address this issue to foster an effective focus on the quality of the engagement each individual firm delivers, as opposed to compliance with complex standards.
Overall, the SMPC generally supports the IAASB’s Proposed Strategy for 2020-2023 and Work Plan for 2020-2021, including the proposed framework of activities and new approach to how the Board will revise and develop standards. The SMPC emphasized how important the work planned by the IAASB on audits of less complex entities is and that this should be a high-priority for the Board.
