The New Standards of Quality Management



Quality control is getting a facelift with the implementation of the AICPA’s new quality management standards system. The first, most obvious change, is the name of the standard which replaces the emphasis on ‘control’ with ‘management.’ This includes updating the nomenclature of the Statement on Quality Control Standards (SQCS) to the new title, Statement on Quality Management Standards (SQMS), No. 1, A Firm’s System of Quality Management. These updates from the AICPA also include a second standard, SQMS No. 2, Engagement Quality Reviews. What follows is a brief overview of everything new about SQMS. 

  1. Uses risk-based approach that tailors quality management to a firm’s circumstances. 
    • Establish quality objectives.
    • Identify and assess quality risks.
    • Design and implement responses.
  2. Revises existing components of the quality management system, including information and communication. 
    • Components are more integrated, rather than linear. 
    • Focused on remediation and improvement. 
    • Designed to be scalable. 
  3. Includes expanded requirements for leadership and governance. 
    • Accountable leader(s) must have appropriate qualifications, influence and authority. 
    • Have specified responsibilities. 
    • Must perform annual evaluations of the system and determine if it provides reasonable assurance that engagements are performed in accordance with laws, regulations and professional standards. 
    • Subject to periodic evaluations.
  4. Enhances processes for monitoring and remediation.
    • Requires a ‘whole system’ approach to monitoring. 
    • Monitoring activities are tailored to the firm.
    • Establishes requirements for completed engagement inspections.
    • Engagement partners to be selected on cyclical basis.
    • Sets forth a framework for evaluating findings, identifying deficiencies, and their root causes.
  5. Establishes new requirements for networks and service providers. 
    • Includes human, technological and intellectual resources used within the system and for engagements. 
    • Requires firms to consider the appropriateness of resources (including financial).
    • Must determine if resources from external service providers are appropriate for use.
    • Sets forth specific requirements for using networks.
  6. Introduces new component for SQMS 1 regarding information and communication.
    • Firms must embed information exchange into culture.
    • Requires an information system to be established.
    • Encourages two-way communications internally and externally.
    • Sets forth specific requirements for communication with external parties.
  7. New SQMS 2 Overview
    • Applicable only when an engagement quality (EQ) review is performed.
    • EQ reviewers subject to specific requirements as related to performance of the review (i.e. threats to objectivity, sufficient time to perform the review, etc.)
    • Establishes parameters for performing EQ reviews.

For a more in-depth review of SQMS No. 1 and SQMS No. 2, AICPA members can download the official Crosswalk document or visit the AICPA Resource Center for more information as it becomes available. MICPA members can also attend the Small Firm Practitioners Conference Aug. 16 – 17 where the AICPA will further explain both quality management standards.  

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