IAASB proposes new standards to improve audit quality

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The International Auditing and Assurance Standards Board has issued a trio of proposed standards to improve the quality of audits, reviews and related assurance service engagements at firms.

The proposed standards offer more of a risk-based approach to implementing quality management systems at firms to establish a foundation for consistent engagement quality. The new approach will be more tailored to the nature and circumstances of the firm and its engagements.

The proposals come at a time when several of the major auditing firms have come under fire for the quality of their audits in the U.S. and abroad after accounting scandals involving companies like Carillion, Patisserie Valerie, Steinhoff and Tesco. In the U.K., the European Union and South Africa, in particular, regulators are considering more stringent requirements, including greater separation between the audit and consulting practices. While the Public Company Accounting Oversight Board sets auditing standards for publicly traded companies and their audit firms, and the American Institute of CPAs sets assurance standards for CPA firms, the IAASB is influential among standard-setters. It is affiliated with the International Federation of Accountants, whose member organizations include the AICPA and the Institute of Management Accountants.

The proposals are supposed to improve engagement quality by modernizing the standards for an evolving and increasingly complex environment, addressing the impact of technology, networks and use of external service providers. The IAASB’s proposed standards also try to improve quality by increasing firm leadership responsibilities and accountability, and improving firm governance. They aim for more rigorous monitoring of quality management systems and remediating deficiencies. The proposals would enhance the engagement partner’s responsibility for audit engagement leadership and audit quality, as well as address the robustness of engagement quality reviews, including engagement selection, documentation and performance.

The IAASB has developed some draft guidance and tools, including examples and frequently asked questions, to help firms adjust to how they would manage quality to comply with the significant changes proposed. The materials also should help firms understand the proposals, including how to apply them under different circumstances.

The IAASB is asking for comments on the exposure drafts by July 1, 2019.

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