Quality Management (Firm Level) Karin French, Quality Control Task Force Chair IAASB Meeting, New York Agenda Item 5 June 21, 2018

Structure of the Standard March 2018 Draft Proposed new Structure Governance and leadership Quality risk assessment process Information and communication Relevant ethical requirements Acceptance and continuance of client relationships and specific engagements Resources Engagement performance Monitoring and remediation process Firm’s risk assessment process

Structure of the Standard Paragraph References for IAASB Discussion Requirements: 6 – 6B Question 2: The IAASB is asked to share its views regarding: (a) The proposed reordering of the components in proposed ISQC 1 (Revised). (b) How the quality risk assessment and the components have been described in paragraphs 6–6B of Agenda Item 5–A, including whether the interconnectedness of the components is clear.

Question: Are Quality Risks Required for All Prescribed Reponses? Option A: The firm is required to identify quality risks for all of the required responses (essentially “backfilling” the quality risks) Establish quality objectives QO A QO B QO C Identify quality risks QR A QR B QR C QR D QR E QR F Design and implement responses Resp. B Resp. A Resp. D Resp. C Resp. E Resp. F Resp. G

Question: Are Quality Risks Required for All Prescribed Reponses? Option B: The firm does not need to have a related quality risk for every required response, i.e., there are some responses that the firm merely implements) Establish quality objectives QO A QO B QO C Identify quality risks QR A QR D QR E QR F Design and implement responses Resp. B Resp. A Resp. D Resp. C Resp. E Resp. F Resp. G

Examples of Quality Risks for Prescribed Reponses for Monitoring and Remediation Prescribed Response Example of a Related Quality Risk The firm shall determine the nature, scope and frequency of the monitoring activities, including the appropriate combination of ongoing or periodic monitoring activities, taking into consideration:… The scope of the firm’s monitoring activities are inadequate to support the evaluation of the design, implementation and operation of the components of the system of quality management The firm shall design and implement monitoring activities to determine whether the responses designed by the firm that are required to be implemented at the engagement level have been implemented… The nature of the firm’s monitoring activities are not designed in a manner that enables the firm to determine whether its responses have been implemented at the engagement level The firm shall investigate the root cause(s) of the deficiencies, through performing procedures whose nature, timing and extent are based on the nature of the deficiencies and their possible severity. The firm’s remedial actions do not appropriately address a deficiency.

The Firm’s Risk Assessment Process Paragraph References for IAASB Discussion Requirements: 18A – 19D Question 3: The IAASB is asked to share their views on the changes proposed in paragraphs 18A–19D of Agenda Item 5–A, including whether the IAASB: (a) Agrees with the QCTF’s conclusion that the standard should be more explicit that the quality objectives are all-inclusive, and reduce the focus on the need for the firm to identify additional or more granular quality objectives. (b) Is of the view that the firm is expected to identify quality risks for all prescribed responses, as explained in paragraph 21.

Monitoring and Remediation Paragraph References for IAASB Discussion Requirements: 44 – 58 Question 4: Does the IAASB agree with the revisions to the monitoring and remediation component in paragraphs 44–58 of Agenda Item 5–A? Question 5: Do the proposed revisions to paragraph 57 of Agenda Item 5–A clarify the expectations of firm leadership in evaluating the SOQM, and are these expectations reasonable in the context of the responsibilities of firm leadership?

Introduction of ISQC 1 (Revised) Paragraph References for IAASB Discussion Requirements: 2A – 7 Question 1: The IAASB is asked to share their views regarding: The purpose statement in paragraph 2A of proposed ISQC 1 (Revised), including the appropriateness of referring to the spirit of professional standards. The revisions to the introductory material addressing the role of professional judgment in the context of an SOQM (see paragraph 5 of Agenda Item 5–A).