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Quality Management for Firms and Engagements

 

 

  


Technical Resource

This webpage contains pronouncements, guides and articles that are relevant to the new and revised Quality Management Standards.

 

Effective Date

The standards are effective from 15 December 2022. They replace the extant HKSQC 1 and HKSA 220.

 

Affected standards

The new and revised Quality Management Standards consist of:

 

HKSQM 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements

  • HKSQM 1 deals with the firm’s responsibility for quality through having a system of quality management. It replaces HKSQC 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements and Other Assurance and Related Services Engagements.
  • Under HKSQM 1, firms are required to design a system of quality management to manage the quality of engagements performed by the firm. This shift in focus from quality control to quality management is achieved by incorporating a risk-based approach, i.e., managing risks to quality.
  • HKSQM 1 applies to all firms performing audits or reviews of financial statements, or other assurance or related services engagements, including compilations or agreed-upon procedures engagements.

 

HKSQM 2 Engagement Quality Review

  • HKSQM 2 deals with the eligibility of the engagement quality reviewer (EQR), and the performance and documentation of the EQR. Although HKSQM 2 is a new standard, many of its elements were enhanced and relocated from extant HKSQC 1 and HKSA 220. 

 

HKSA 220 (Revised) Quality Management for an Audit of Financial Statements

  • HKSA 220 (Revised) applies to audits of financial statements and addresses how quality is managed at the audit engagement level by the engagement partner. It makes clear that the engagement partner is responsible for managing and achieving quality at the engagement level, for determining that there are sufficient and appropriate resources assigned or made available on a timely basis and for determining the nature, timing and extent of direction, supervision and review. It also contains a “stand-back” provision that requires the engagement partner to determine they have done enough to take overall responsibility for managing and achieving quality on the audit and whether their involvement has been sufficient and appropriate.

 

Why change

The new and revised standards strengthen and modernize the audit firm’s approach to quality management. They address an evolving and increasingly complex audit ecosystem, including growing stakeholder expectations and a need for quality management systems that are proactive and adaptable. 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.

 

The new and revised standards are intended to improve engagement quality through:

  • Modernizing the standards for an evolving and increasingly complex environment, including addressing the impact of technology, networks, and use of external service providers;
  • Increasing firm leadership responsibilities and accountability, and improving firm governance;
  • More rigorous monitoring of quality management systems and remediating deficiencies;
  • Enhancing the engagement partner’s responsibility for audit engagement leadership and audit quality; and
  • Addressing the robustness of engagement quality reviews, including engagement selection, documentation, and performance.

 

 

Click below for more information:


 

 

 

Last updated: April 2021

 

 

 

Frequently used resources

 
 



Technical enquiries

  Click here to submit questions on standards issued by the Institute.
   
 
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