Audit

Audit Quality Control: ISQC 1 Requirements

Amy Richards | | 4 min read

Quick answer: ISQC 1 (International Standard on Quality Management 1) requires firms to design, implement, and operate a quality management system (QMS) with 8 components: risk assessment, governance, ethics, engagement performance, resources, IT, monitoring, and documentation.

ISQC 1 Overview

ISQC 1 — Quality Management for Firms that Perform Audits or Reviews of Financial Statements is the international standard that requires accounting firms to establish and maintain a Quality Management System (QMS). It was revised in 2022 (effective December 2022) to adopt a risk-based approach focused on quality objectives, risks, and responses.

The standard requires the firm's leader to take responsibility for the QMS and fosters a culture of quality within the firm.

The Eight Components of ISQC 1

  • Risk assessment: Identify and assess risks to quality management
  • Governance and leadership: Tone at the top — commitment to quality, ethical values
  • Ethical requirements: Independence, integrity, objectivity, professional competence
  • Engagement performance: Appropriate supervision, review, and consultation
  • Resources: Human, technological, and intellectual resources to execute engagements
  • Information and communication: Internal communication of quality policies and procedures
  • Monitoring and remediation: Ongoing monitoring and remediation of deficiencies
  • Documentation: Maintain documentation sufficient to support the QMS

Engagement Quality Control Review (EQCR)

For listed entities and other high-risk engagements, ISQC 1 requires an engagement quality review — an independent assessment by a senior partner who was not involved in the engagement. The EQCR reviewer must:

  • Read the financial statements and engagement report
  • Read key working papers
  • Evaluate the engagement team's assessment of significant risks
  • Conclude whether the financial statements and report can be issued

Monitoring and Remediation

The firm must conduct:

  • Root cause analysis on adverse findings from inspection and monitoring
  • Corrective actions to address systemic issues
  • Documentation of inspection results and actions taken

Internal links (related)

Author

Amy is a Certified Public Accountant (CPA), having worked in the accounting industry for 14 years. She is a seasoned finance executive having held various positions both in public accounting and most recently as the Chief Financial Officer of a large manufacturing company based out of Michigan.