ong Kong Standard on Quality Management (HKSQM) 1 replaces the extant Hong Kong Standard on Quality Control (HKSQC) 1 and requires firms to have a system of quality management (SOQM) designed and implemented by 15 December 2022.
A key change from the extant HKSQC 1 is the introduction of a risk-based approach to quality management through the firm’s risk assessment process. The process requires a firm to establish their quality objectives, identify and assess their quality risks, and design and implement responses to address such risks. Applying a risk-based approach helps a firm tailor its SOQM to the firm’s circumstances and engagements, which helps the firm effectively manage quality through concentrating on what matters most. For example, a firm that performs different types of engagements for a wide variety of entities will likely have a more complex and formalized SOQM and supporting documentation.
Another key change is the new requirements to address intellectual resources, technological resources, networks, and the use of external service providers. Many firms have methodologies, templates or IT applications in place to support performance of engagements, which fall within the scope of intellectual or technological resources. Such resources may be internally developed, obtained from respective networks or brought from an external service provider. Firms may also engage individuals from their networks or external service providers to perform audit procedures or carry out activities, such as component auditors and individuals outside of the firm to perform monitoring activities. While this is allowed under the extant HKSQC 1, guidance on how firms should assess these resources has been enhanced under HKSQM 1. Firms will need to understand how these various resources are obtained, developed and maintained, and evaluate whether they are appropriate for use.
HKSQM 1 also enhances requirements to address firm governance and leadership, including increased leadership responsibilities. It requires the firm to assign responsibilities for the SOQM and other aspects of the system, and to hold the individuals accountable for their assigned roles.
HKSQM 1 extensively enhances monitoring and remediation to promote more proactive monitoring of the SOQM as well as effective and timely remediation of deficiencies. In particular, it introduces a new framework for evaluating findings and identifying deficiencies, evaluating identified deficiencies, and more robust remediation.
The new quality management standards also include HKSQM 2 Engagement Quality Reviews, and Hong Kong Standard on Auditing 220 (Revised) Quality Management for an Audit of Financial Statements. The former deals with the eligibility of the engagement quality reviewer and the performance of such review. The latter addresses how quality is managed at the engagement level.
About the workshops
The Institute has arranged three virtual workshops in Cantonese to enhance knowledge and understanding of the new quality management standards with applications and illustrated examples.
The first virtual workshop “Overview and key requirements” will take place on 8 March and aims to introduce the key changes and requirements of the new standards to assist small and medium practitioners (SMPs) in preparing for them. The workshop will explain the eight components in HKSQM 1 and the required quality objectives, providing a closer look at the increased leadership responsibilities.
The second virtual workshop “Implementing the risk-based approach” will be held on 7 April and focuses on the firm’s risk assessment process, including how to establish quality objectives, identify and assess quality risks, and design responses to quality risks. Examples will be provided illustrating how the firm’s risk assessment process may be affected by the nature and circumstances of the firm and its engagements, such as quality risks and documentation applicable to SMPs.
The third virtual workshop “Intellectual, technological and human resources including those from service providers” will be held on 21 April and takes a deep dive into intellectual, technological and human resources and related requirements. The workshop will take a closer look at the firm’s responsibilities when using resources from external service providers in performing engagements or in carrying out SOQM activities with illustrated examples, especially for SMPs.
Eddie Ng CPA, Partner of Department of Professional Practice at KPMG China, specializes in quality assurance and audit reporting and provides technical and training support on auditing and assurance matters. She also has extensive experience in maintaining the firm’s system of quality control under the extant HKSQC 1 and coordinating the firm’s implementation of the system of quality management under HKSQM 1.
