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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Quality management (firm and engagement level)

Harbour & Wells, an audit firm, is revising its system under ISQM 1. The managing partner says the firm will simply keep its existing quality control policies, since they worked under the old ISQC 1. Which statement best describes what ISQM 1 requires?

ISQM 1 requires the firm to design, implement and operate a risk-based system of quality management. The firm sets quality objectives, identifies and assesses quality risks to achieving them, and designs responses. Simply retaining old fixed policies without a risk assessment would not satisfy the standard.

  1. AThe firm must design a risk-based system of quality management, setting quality objectives, identifying and assessing quality risks and designing responses to themCorrect
  2. BThe firm may retain fixed policies provided they cover the same elements as the old standard, without any risk assessment
  3. CThe firm must only apply quality management procedures at engagement level, as firm-level processes are optional
  4. DThe firm need only document quality management procedures for listed entity audits

Explanation

ISQM 1 replaced ISQC 1 with a proactive, risk-based approach: the firm sets quality objectives, identifies and assesses quality risks, and designs and implements responses. Keeping fixed policies without risk assessment does not meet this. The system applies to all audits and related engagements, not only listed entities.

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