By Jim McFie, a Fellow of ICPAK
On 6 November 2023, the International Federation of Accountants (IFAC) published a Quality Management Toolkit for Small- and Medium-Sized Firms and an Illustrative Risk Matrix. The toolkit and accompanying matrix will help small- and medium-sized practices (SMPs) implement the International Auditing and Assurance Standards Board’s suite of quality management standards. The publications include a suite of illustrative documents, policies, checklists, sample letters and forms to help SMPs establish their quality objectives, identify and assess quality risks, and design and implement responses to address their identified quality risks. The toolkit is designed for each SMP to adapt the content to its nature, circumstances, and engagements, a crucial element given each firm goes through its own unique process developing its quality management system.
All audit firms in Kenya are required to have systems of quality management designed and implemented in accordance with the International Standard on Quality Management 1 Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (ISQM 1). ISQM 1 strengthens a firm’s systems of quality management through a robust, proactive and effective approach to quality management. The standard encourages firms to design a system of quality management that is tailored to the nature and circumstances of the firm and the engagements it performs.
ISQM 1 requires each firm to have appropriate documentation in writing to be in place to provide evidence of the operation of each component of its system of quality management. The quality management toolkit, containing all policies and procedures, should be made available to all team members (in soft copy and hard copy): feedback on the system of quality management is encouraged. The quality objectives, quality risks and responses are not static, and all the members of the firm can contribute to ensuring the quality objectives are kept up to date and relevant. All personnel have a responsibility for quality in the firm and are expected to comply with all policies and procedures. Any changes to the quality management document and/or the firm’s policies and procedures must be explained to firm members at regular firm meetings. I would suggest that all documents relating to the system of quality management should be retained for at least seven years.
The toolkit is a very comprehensive document which can be made appropriate to the individual firm by copying the toolkit contents and inserting the relevant information applicable to the firm.
For example, the opening part of the firm’s quality document will start with the name of the firm, followed by its philosophy which is stated in the toolkit and is applicable to all firms: “Our philosophy represents the beliefs of the firm and our understanding of how we work and provide services to our clients”. This is followed by: “Membership of the Institute of Certified Public Accountants of Kenya: We value our membership of the Institute of Certified Public Accountants of Kenya and strive to be active members. As the conduct of individual members reflects upon the whole profession, we endeavor to refrain from any conduct which might bring discredit to our profession”. Then comes: “Client relationships: We seek to add value to all client relationships through our skills, knowledge and efforts. Our clients are carefully selected to ensure they have appropriate levels of integrity and will benefit from our relationship. We try to help clients define and achieve their personal goals and consider these in establishing the goals of the business they currently own and operate. The firm has served different clients for many years, and we take comfort from and appreciate their continued trust. We seek to be a trusted service provider to our clients. To achieve this aim, we provide a high level of service that complies with professional and ethical standards”. After that: “Relationship with the team: We see our employees as more than human resources. We aim to attract employees with integrity and the ‘right’ attitude. Communication, direction and training play important roles in our interaction with the team.
Background of the firm: The firm was established in 1973 [insert the appropriate year] and provides assurance, compilation and advisory services [adapt as required] to clients in a broad range of industry areas [Useful to identify types of clients and experience in particular industries].
Firm structure: Refer to the firm structure diagram. The firm is not part of a network (such as Baker Tilly, BDO, Crowe Erastus and Co., Deloitte, EY, Grant Thornton, KPMG, Mazars,PKF, PwC or RSM). The organization structure is designed to ensure that clients have confident, easy access to more than just one person in the firm, but a partner is appropriately involved in all outward correspondence and reports. Copies of emails to/from clients are copied to the relevant partner. A partner signs all audit, assurance and agreed-upon procedure reports and almost all (covering) letters. Occasionally, key correspondences are signed by the team member. Partners normally view these before they are sent and both a soft and hard copy is retained”.
The toolkit goes on to deal with Firm goals, Firm size, Client service approach, Professional services, Geographic details, Firm structure, a Risk assessment process policy statement, Quality objectives, Quality risks, Responses, the fact that quality is an iterative process, and the Risk assessment matrix, which covers all the facets of risk that should be covered by the firm. This is followed by the Governance and leadership policy statement, the Relevant ethical requirements policy statement, the Annual independence confirmation, the Independence resolution memorandum and Acceptance and continuance of client relationships and specific engagements policy statement. The document ends with a Deficiency evaluation worksheet.
The toolkit was originally developed by the Chartered Accountants Australia and New Zealand (CA ANZ). CA ANZ represents more than 136,000 members around the world, offering its flagship
CA Program, promoting the CA designation and high ethical standards and delivering world class services and lifelong education to its members and advocates for the public good. The toolkit was adopted by IFAC (with permission from CA NZ). IFAC is a much bigger body. It is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. It is comprised of over 180 members and associates that is Institutes such as ICPAK, in more than 135 jurisdictions, representing almost 3 million accountants in public practice, education, government service, industry, and commerce.
If you are a sole proprietor or a small audit firm, the toolkit is a document that you should adopt. It will make compliance with ISQM 1 a walk in the park.
