IFAC SMP Committee Comment Letter on the IAASB Exposure Draft for Proposed International Standard on Quality Management 2

Based on how the standard is currently being drafted, the proposed International Standard on Quality Management 2 (ISQM 2) is unique as it combines firm wide requirements for policies and procedures and engagement level requirements relating to EQR with the objective of the firm being framed, in part, as the responsibility of the EQ reviewer. Although the IAASB is confident that such an approach is not an issue (since the standard is intended to be outcome-oriented), the SMPC has some concerns over the approach. The lack of clear demarcation of responsibilities between the firm, the engagement partner and the EQR may lead to confusion as to who is ultimately responsible, particularly in the case of breaches and where the remedial action should be taken. The risks associated with this might be reduced if the standard was restructured to deal with firm wide policies and procedures and engagement level procedures separately. In addition, smaller firms often have relatively small pool of individuals with both the seniority and experience to act as engagement partners and engagement quality reviewers. For this reason, the practicalities associated with internal rotation generally poses specific challenges to such firms. We would also caution that the use of any external third party adds significant costs that will disadvantage SMPs and/or the SMEs they serve.