Firms must adopt quality control standards in line with increasing stakeholder expectations and quality control requirements.

6 elements of ISAQC-1

ISQC-1 provides six elements to consider when conducting audits and other related services. According to ISAQC-1, the firm’s senior management is responsible for implementing overall quality control standards.

1. Leadership responsibility for quality control—The firm’s leadership is responsible for enhancing accountability and quality control culture. In other words, senior management is responsible for promoting internal quality improvement culture.
2. Relevant ethical requirements—The audit firm’s quality control mechanism must comply with relevant ethical and regulatory requirements.
3. Maintain adequate human resources—Senior management needs to ensure adequate resources are available within the business in line with the workload.
4. Measure engagement performance– Implement quality control metrics and controls, resulting in the ability to measure performance. For instance, KPI implementation is used for performance measurement.
5. Measures on acceptance and continuation of audit—Before accepting new audit clients and continuing to provide services, the audit firm is responsible for ensuring they are competent and have sufficient resources.
6. Overall monitoring—Senior management is responsible for continuously monitoring the adequacy, relevancy, and operational effectiveness of the overall quality control mechanics.

ISQC-1 is a principle-based framework and requires sophisticated controls in line with scalability.

Challenges in implementing ISQC-1

Following are some of the essential challenges when implementing ISQC-1

1. Limited resources– small audit firms are expected to face bottlenecks in terms of limited resources. Accounting and auditing adjustments are often complex and technical. Hence, they need competent & experienced staff.
2. Lack of competent and experienced staff—Competent auditing staff is often expensive and considered a scarce resource. Hence, implementing ISQC-1 is challenging.

Advantages of implementing ISQC-1

The following are the advantages of ISQC-1.

1. Helps to improve overall audit quality regarding procedural formalities, documentation, and compliance with auditing, accounting, and local regulations.
2. The appropriateness of audit reports is enhanced when sophisticated controls are implemented. Hence, the chances of engagement risk are reduced/limited.
3. It helps to enhance quality culture, staff development, competence, retention, continuing professional development, and the ability to respond to increasing compliance requirements.

However, the benefits of quality control implementation must exceed the related costs.

Conclusion

International standards on quality control 1 require audit firms to implement quality controls and enhance overall audit quality. The quality standard provides six elements to work on. These elements include leadership direction towards quality improvement, complying with ethical requirements, maintaining adequate human resources, measuring engagement performance, assessing risk levels when accepting new clients or continuing with the engagement, and overall quality monitoring.

Implementing ISQC-1 guidance on audit firms is challenging as it’s driven by consuming resources in terms of time, additional work, and cost.

There are various advantages of ISQC implementation, but the cost of controls must not exceed the benefits.