Article by Circit (www.circit.io)

The International Standard on Quality Management (ISQM) 2, titled “Engagement Quality Reviews”, is in effect for audits and reviews of financial statements for periods beginning on or after 15 December 2022. What is the status quo of audit quality management more than two years later?

Understanding ISQM 2: Core Components

ISQM 2 is an important part of quality management standards. It works alongside ISQM 1, which focuses on the overall quality management systems of firms. The main goal of ISQM 2 is to improve audit quality, by creating a strong framework for reviewing engagement quality. Key aspects include:

• Appointment and Eligibility of EQRs: The standard mandates that firms establish policies to appoint EQRs who possess the requisite competence, capabilities, and objectivity. This ensures that reviewers can effectively evaluate the significant judgments and conclusions made by the engagement team.

• Performance of Engagement Quality Reviews: EQRs must conduct careful evaluations of chosen engagements. They focus on key areas like important judgments, risk assessments, and the adequacy of audit evidence.

• Documentation: Comprehensive documentation of the engagement quality review process is essential. This includes detailing the procedures performed, findings, and conclusions, thereby providing transparency and accountability.

Read the full article on the Circit website.