Auditing Standard ASA 2021-1 Amendments to Australian Auditing Standards

Overview

The Auditing and Assurance Standards Board (AUASB) has issued the Auditing Standard ASQM 1 Quality Management for Firms that Perform Audits or Reviews of Financial Reports and Other Financial Information, or Other Assurance or Related Services Engagements and ASA 2021-1 Amendments to Australian Auditing Standards, pursuant to the legislative provisions outlined in the Australian Securities and Investments Commission Act 2001 and the Corporations Act 2001. The AUASB, established as a Non Corporate Commonwealth entity, aims to develop auditing standards that uphold a clear public interest focus and the highest quality, in line with the Strategic Direction provided by the Financial Reporting Council. This Auditing Standard serves as the Australian equivalent of ISQM 1, replacing the previous ASQC 1 Quality Control for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements, and includes consequential amendments to other Auditing Standards due to changes in ASQC 1. The new standard introduces a quality management approach focused on proactively identifying and responding to risks to quality, enhancing the robustness of firms' systems of quality management, and requiring firms to customise their quality management systems based on their specific circumstances. The Auditing Standard ASQM 1 and its amendments are compatible with human rights as outlined in the Human Rights (Parliamentary Scrutiny) Act 2011, as they do not diminish or limit any applicable human rights or freedoms, and thus do not raise any human rights issues. The AUASB's process involved public consultation and the preparation of a Regulatory Impact Statement, which was cleared by the Office of Best Practice Regulation.

Scope and Application

The Auditing and Assurance Standards Board (AUASB) has issued Auditing Standard ASQM 1 Quality Management for Firms that Perform Audits or Reviews of Financial Reports and Other Financial Information, or Other Assurance or Related Services Engagements and ASA 2021-1 Amendments to Australian Auditing Standards. This Auditing Standard is a legislative instrument under the Legislative Instruments Act 2003 and represents the Australian equivalent of the International Standard on Quality Management 1 (ISQM 1). It is designed to replace the existing ASQC 1 Quality Control for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements. The AUASB, established under the Australian Securities and Investments Commission Act 2001 and operating under the Corporations Act 2001, is tasked with developing auditing standards that focus on the public interest and are of the highest quality. The purpose of these standards is to enhance the robustness of firms’ systems of quality management, requiring firms to tailor their quality management systems to their specific nature and circumstances. These standards are applicable to firms that perform audits or reviews of financial reports and other financial information or other assurance or related services engagements. They apply nationally, and compliance is mandatory for the specified firms to ensure the maintenance of high standards of quality in financial reporting and assurance services. The standards include consequential amendments to other Australian Auditing Standards to ensure consistency and conformity with the new quality management approach.

Key Provisions

The Auditing and Assurance Standards Board (AUASB) has introduced Auditing Standard ASQM 1 Quality Management for Firms that Perform Audits or Reviews of Financial Reports and Other Financial Information, or Other Assurance or Related Services Engagements, along with ASA 2021-1 Amendments to Australian Auditing Standards. This standard serves as the Australian equivalent of the International Standard on Quality Management 1 (ISQM 1) and replaces the previous ASQC 1 Quality Control for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements. The purpose of these standards is to improve the quality management systems of firms performing audits, reviews, and other assurance or related services engagements, ensuring that they are robust and tailored to the specific nature and circumstances of each firm and the engagements they undertake. Sections 336 of the Corporations Act 2001 and 227A of the Australian Securities and Investments Commission Act 2001 empower the AUASB to issue these Auditing Standards, which are legislative instruments under the Legislation Act 2003. The AUASB is guided by the Financial Reporting Council to develop standards that have a clear public interest focus and are of the highest quality. The new quality management approach introduced by ASQM 1 requires firms to proactively identify and respond to risks that may impact the quality of their engagements, enhancing the requirements for governance and leadership, monitoring, remediation, and addressing the circumstances when a firm is part of a network. Firms must design, implement, and operate their quality management systems in compliance with ASQM 1 by 15 December 2022. Additionally, the evaluation of the quality management system as per paragraphs 53–54 of ASQM 1 must be conducted within one year following the implementation date. The AUASB followed due process in developing these standards, consulting publicly with stakeholders and considering their submissions. The Regulatory Impact Statement prepared in connection with ASQM 1 has been cleared by the Office of Best Practice Regulation. The AUASB has ensured that these standards are compatible with human rights as recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. The standards are designed to facilitate the Australian economy without diminishing or limiting any applicable human rights or freedoms. Consequently, they do not raise any human rights issues, and the Legislative Instrument is compatible with human rights.