Audit Firm Quality Management Overview

Summary

In this video, Amanda, an auditing educator from an Australian university, discusses new audit firm quality management standards, focusing on ISQM1, ISQM2, and ISA 220, set to be implemented in 2022. She provides an overview of the audit quality framework, emphasizing the importance of detecting and reporting material misstatements. She also explains how audit quality is managed at both the engagement and firm levels, including governance, risk assessment, and monitoring. Amanda highlights the need for engagement quality reviews and outlines how these new standards aim to improve overall audit processes.

Takeaways

• 📊 The video discusses audit firm quality management, focusing on new exposure drafts ISQN1, ISQM2, and ISA 220, set to be implemented in 2022.
• 📚 Audit quality is crucial for the accuracy and reliability of financial statements, and it can be defined in various ways, though no single universally accepted definition exists.
• 👀 According to research from D'Angelo (1981), audit quality depends on two factors: the auditor's ability to detect material misstatements and their propensity to report them.
• 👥 Audit quality is achieved at the individual audit engagement level, with teams responsible for adhering to auditing standards such as ISAs or ASAs.
• 👔 The audit partner is ultimately responsible for audit quality, but the audit firm as a whole must also have policies in place to ensure quality across all engagements.
• 🏢 The Quality Management Standards (QMS) aim to ensure that audit firms manage audits with consistency, involving key components like governance, leadership, risk assessment, ethics, and monitoring.
• 📋 ISQN1 focuses on audit firms' structural policies for quality management, emphasizing the need for monitoring and review processes.
• 🔍 ISQM2 centers on engagement quality reviews, ensuring that a qualified and independent review partner evaluates key audit judgments before signing off on the audit.
• 📑 ISA 220 deals with audit quality at the engagement level, covering documentation, supervision, and monitoring of the audit team.
• 🌍 The video also highlights a fundraising campaign by the presenter to support international students affected by COVID-19 by providing food hampers through OzHarvest.

Q & A

What is the primary focus of the video?

The video focuses on audit firm quality management, specifically discussing new standards such as ISQN1, ISQM2, and ISA 220, which are aimed at improving audit quality.

What are the two main factors of audit quality according to D'Angelo's 1981 research?

D'Angelo's 1981 research highlights two factors of audit quality: (1) the ability to detect material misstatements, and (2) the propensity to report material misstatements.

Why is audit quality difficult to define?

Audit quality is difficult to define because there is no universally accepted definition, making it challenging for regulators and inspectors to ensure consistent audit quality.

What is the role of the audit partner in ensuring audit quality?

The audit partner is ultimately responsible for the audit quality on a specific engagement, ensuring that the audit team follows standards and conducts a proper evaluation of the client's financials.

What is the difference between ISQN1 and ISQM2?

ISQN1 focuses on the structures and policies audit firms must have in place to manage quality across the organization. ISQM2, on the other hand, is specifically about engagement quality reviews and ensuring that audits are properly reviewed by qualified and independent reviewers.

What are the eight components of quality management in ISQN1?

The eight components of quality management in ISQN1 are governance and leadership, risk assessment, ethics, engagement acceptance and continuance, engagement performance, resources, information gathering, and monitoring.

What is the purpose of engagement quality reviews in ISQM2?

The purpose of engagement quality reviews in ISQM2 is to ensure that each audit engagement is reviewed independently by a qualified reviewer to assess whether the audit team followed standards, remained objective, and did not miss key issues.

What is the role of ISA 220 in audit quality management?

ISA 220 focuses on audit quality at the engagement level, including aspects such as documentation, supervision, and ensuring that the audit is conducted and reviewed according to the standards.

Why is monitoring an important component of audit firm quality management?

Monitoring is important because it ensures that audit firms regularly review their quality management processes, address any issues, and make necessary improvements to maintain high audit standards.

How does the video suggest that audit quality is linked to firm-wide processes?

The video suggests that audit quality is not just about individual engagements but also firm-wide processes. Audit firms must have policies and procedures in place to ensure consistent quality across all engagements and partners.