The International Auditing and Assurance Standards Board (IAASB) has released the International Standard on Quality Management (ISQM1), which outlines the requirements for quality management systems. This standard replaces ISA 220 and will be effective from December 2022. The requirements outlined in ISQM1 are essential for audit firms that desire to achieve excellence in their quality management system. In this article, we will discuss each of these requirements in detail.
A brief introduction of IQSM1
The purpose of the IQSM1 is to provide a common approach and set of criteria for assessing the quality of services provided by professional accountants in practice. It recognizes that professional services are often performed by small firms and sole practitioners, as well as groups and corporate structures consisting of various levels of personnel. Under this standard, the quality system is what you put into place to monitor your practice’s performance in providing service (i.e., technical or other services) to clients.
Establishing a quality policy
Setting the quality policy for a firm is an important part of the overall ISQM1 requirements governing quality management. Establishing a quality policy is often seen as a key step in defining a company’s vision, mission and values. Even if the firm has previously defined its vision, mission and values, they might not have been integrated into one document.
Organizations that want to implement a quality management system must first establish a quality policy. This policy should be approved by senior management and communicated to all employees. The quality policy should set the direction for the organization’s quality management system and provide guidance on how to achieve its objectives.
Establishing quality objectives
Your firm must establish quality objectives that are consistent with its quality policy. The quality objectives should be established at relevant functions and levels within the organization and take into consideration the applicable requirements from customers, interested parties and regulatory authorities. The organization needs to plan to achieve these objectives and review them regularly, as well as analyze data to demonstrate whether the objectives are being met or not as an ISQM1 requirement for quality management. The objectives should be specific, measurable, achievable, relevant, and time-bound. They should be aligned with the firm’s strategic goals and reflect the needs of its clients and other stakeholders.
Creating a process approach
The importance of process approach is that it enables a firm to identify, manage, measure and analyze processes relating to quality management. The benefits of creating a process approach are very clear to be competitive in the global market. It allows for consistency with the stipulations and requirements expected by the client. This understanding will allow a company to provide their customers with a cost effective product or service of high quality on time and every time.
Creating a process approach means that all processes related to the delivery of services should be systematically designed and managed. The process approach should ensure that all activities are aligned with the firm’s quality objectives and that client feedback is integrated into the design of new processes and the improvement of existing ones.
Using a risk-based approach
The increasing globalization in the business market causes a need to address cross-border requirements concerning quality management, risk management and knowledge management. Consequently, the focus of this new standard is on using a risk-based approach and in particular the use of risk management as a tool during continuous improvement. This standard has been developed to enable risk-based thinking to be specifically applied within a firm’s QMS. ISQM1 provides the framework within which an organization can establish, implement, maintain and continually improve its management system for quality and apply tools for continual improvement of processes by identifying potential risks and opportunities that must be addressed throughout the audit life cycle.
Ensuring competence of personnel
The sixth requirement is to ensure the competence of personnel involved in the quality management system. A firm needs to ensure that its personnel are fully competent to perform their assigned tasks and roles. This is achieved through education, training, skills and experience. Applicable factors such as knowledge, skill and personal attributes may need to be considered when determining the competence needed for personnel. The firm should determine the knowledge and skills needed for each person based on the contribution that each makes to the audit process.
Establishing and maintaining records
The seventh requirement is to establish and maintain records demonstrating the achievement of the firm’s quality objectives. This is an especially challenging requirement for small and medium practise firms SMPs that rely on manual processes. ISQM1 demands that appropriate records be established and maintained to provide evidence of conformity to requirements and of the effective operation of the quality management system. SMPs should take advantage and migrate to affordable audit software solutions such as Auditproo in order to meet this requirement. When establishing and maintaining records, ISQM1 does not require that any specific format be used, nor does it specify how long records should be retained. Those decisions are left to each individual firm’s risk assessment.
Establishing leadership commitment
Leadership commitment should be established by the leaders of the organization to help support the quality policy statement, quality objectives and required resource allocation, and to improve organizational performance. Leaders need to show their commitment through demonstrating their support for the quality management system, participation in its implementation and continual improvement, etc. They should also ensure that needs and expectations of clients are met with the services delivered by the firm. Senior management must provide visible support for the quality management system and ensure that it is implemented throughout the firm. Management must also allocate adequate resources to maintain and improve the system over time.
Establishing and maintaining management system infrastructure
The infrastructure of a quality management system is the foundation for maintaining and improving it. A continuous improvement cycle requires the firm to create an effective infrastructure through establishing continual improvement processes, implementing policies, and managing appropriate resources as a means of establishing and meeting strategic objectives. The management system infrastructure includes the firm’s structure, the roles, responsibilities and authorities, the groups, control systems and processes (such as management reviews), which together are used by and facilitate the planning, operation and control of the management system, including changes to the management system.
Following ISQM1 requirements is the smart way to manage quality processes and achieve regulatory compliance. Its focus on effective document and record management will help you reduce waste and boost efficiency. ISQM1 requirements will help you to understand how to plan and implement the processes for developing, implementing and operating your quality management system.