Quality Takes a Big Step Forward - What does it mean for Canada?

Big news in the profession. Last week International standards took a strong step forward when IAASB approved the suite of standards related to quality management. The approved standards consist of: 

• ISQM1 Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements
• ISQM2 Engagement Quality Reviews
• ISA 220 (Revised) Quality Management for an Audit of Financial Statements

These standards replace the previous ISQC1. CSQC1 currently exists in Canada. The new standards include a proactive risk-based approach to effective quality management systems within firms. The new approach improves the scalability of the standards because it promotes a system tailored to the nature and circumstances of the firm and its engagements.

Why do Canadian practitioners care about this big news? We care as the AASB has exposed draft standards on the same topic. The AASB is considering specific topics that may need to be addressed in Canada.  The biggest issue being addressed is the fact that the current quality control (CSQC1) standard does not apply to Related Services.  That is, the new suite of standards would now apply to compilation engagements.  For firms that provide a full suite of engagements including audits and reviews, the change in standards may be impactful, however I do not believe they will be overwhelming, just an improvement in the firm's existing quality control policies and procedures.  However, for those firms that only perform compilation engagements the new standards could mean a significant change as formal quality policies and procedures may not be in place.

Ultimately, we can expect to see the same suite of quality management standards approved here in Canada.

My belief is that this is a positive change.  Measures to strengthen quality and the trust is CPAs can only help our profession.  In addition, this is yet another step forward in the discussion of compilation engagements and whether they should be a “protected service”.  I fully support that this should the case.  CPAs add value to their clients and understand the “story” behind the numbers.  The CPA designation also has value as engagements are performed with the strength of knowledge, experience, and quality behind them.  Practitioners follow standards for a reason, and this should be recognized.  In my opinion, only designated professionals should be able to issue compilation engagements.  But that is a discussion for another day.

What do you think of the new suite of quality standards? I have participated in several workshops on the new standards and believe the changes are encouraging for our profession. Do you agree? What do you think will be your challenge in implementing the new standards? Post your thoughts and views and I would be happy to pass them onto the AASB.