Thursday, August 1, 2019

The Baker Tilly network responds to quality standards consultation

Baker Tilly International has responded to Consultation on the IAASB’s Exposure Drafts for Quality Management at the Firm and Engagement level, including Engagement Quality Reviews

Paul Winrow, Director of Professional Standards for the Baker Tilly network, commented: "Baker Tilly International supports the IAASB’s general direction in its proposals to enhance Quality Management at the Firm Level (ED-ISQM1) and Engagement Quality Review (ED-ISQM2), and we are pleased to see the importance of the engagement quality review process reflected by the introduction of a second international quality standard.

"However, we have expressed our concern in a number of aspects of the detailed proposals. We are particularly concerned about the impact of the enhanced requirements and complexity of the standards on small and medium practices."

In responding to the consultation, Baker Tilly International has highlighted concerns around:

  • Whether small and medium practices (SMPs) will be able to implement the new standards effectively and consistently
  • The length and enhanced complexity of the proposals, in particular requirements around documentation and evaluation of the system of quality management
  • Whether the enhanced requirements at the firm level will necessarily achieve the required outcomes of improvement in quality at the engagement level
  • The definition of a quality risk as something that is ‘anything more than remote’, which will mean that there is a very low bar for the identification of risks for which responses are required
  • The IAASB moving away from its original intention to include required risks in the standard in addition to required objectives and required responses
  • The implication throughout the standard that there is more to the system of quality management than the standard describes (i. firms are required to identify additional quality objectives, all quality risks and additional responses) means that by definition ED-ISQM 1 cannot be consistently understood or interpreted.

Regarding the scalability and consistent application of the standard Winrow commented:  We are disappointed that the IAASB has not taken a ‘bottom-up’ approach to enabling scalability in the new standard. We believe it would be more appropriate to develop baseline requirements for all firms, including sole practitioners and SMPs, and build additional requirements for larger, more complex firms.

“Instead the approach is to have complex requirements applicable to all firms, regardless of their size and nature, and to enable scalability through application material, additional guidance and examples, which will make consistent application of the standard more difficult.”

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