Friday 14 August 2020



The PIOB’s recommendations are based on the proposals discussed by the IAASB as of June 2020.

For further information and details about the IAASB projects, please refer to the IAASB website:

Update of this document: July 1, 2020

Document: IAASBprojects.pdf

ISQM1 "Quality Management for Firms that perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements"

PIOB Recommendation:

The objective of a Quality Management System (QMS) should focus on high quality audits

The standard should state clearly that the objective of the quality management system is to produce high quality audits. The PIOB continues to encourage the IAASB to be clear that the objective of a QMS is Audit Quality, not just compliance with standards and legal requirements. The objective should be outcome based, rather than focused on a process.

The firm’s business model should not interfere with Audit Quality (AQ)

The firm’s business model includes the governance structure of the firm, adherence to ethical requirements by the firm’s management and by the auditors, the incentive structure of partners and staff, auditor’s accountability, non-assurance services provided to audit clients. All those elements should promote Audit Quality, not interfere with it. The PIOB acknowledges the inclusion, in the standard, of the business model as a factor which may adversely affect audit quality.

The IAASB should continue coordinating with the IESBA aspects related to ethical requirements

The PIOB welcomes the coordination between the IAASB and the IESBA on aspects related to the Code of Ethics (e.g. ethical requirements, auditor independence and engagement quality control reviews).

Networks need to be better addressed in ISQM1

Investors and those who use audit services from a global “branded firm” should receive uniform quality from that brand.

ISQM1 should contemplate coordinating at network level all of those aspects that affect the AQ of that brand.

The PIOB notes that provisions in the standard have been improved by introducing considerations of networks at different levels, as well as a requirement to obtain information about how network requirements have been appropriately implemented across the network firms.

Transparency Reports (TR) or other form of external communication should be required in ISQM1

Communicating externally the firm’s quality management systems is in the public interest. The minimum content of TR (or alternative reporting) should be indicated in the standard, and include a description of the firms’ quality management system, deficiencies found, and measures taken to remediate them.

The PIOB welcomes the current proposals to require communications to Those Charged with Governance for listed entities and the guidance on matters which may be communicated about the system of quality management (e.g. business model, strategy, results of the monitoring activities and remediation actions). The PIOB recommends extending such requirement to external parties (e.g. investors, oversight bodies, regulators). Transparency Reports are currently provided as an example of external communication in ISQM1 in the Application Material.

Complexity and scalability of the standard should be addressed

The length and complexity of the standard are major concerns, as they may impede the ability of smaller firms to implement the standard.

Scalability needs to be addressed as well and guidance should be provided for smaller firms. The PIOB notes that scalability examples have been provided throughout the standard.

ISQM2 "Engagement Quality Reviews"

PIOB Recommendation:

Engagement Quality Reviews (EQRs) should be required for all PIEs

EQRs should be required for all PIEs.

The initial proposal by the IAASB to require EQRs for “significant public interest” entities, such as banks, insurance companies and pension funds, was withdrawn.

The current proposals include in the scope: listed entities, EQRs required by law or regulations, EQRs when appropriate.

The PIOB recommends using the PIE concept, taking into account the current IESBA project on the definition of PIEs, to ensure consistency with the Code of Ethics.

Coordination with the IESBA on aspects related to ethical requirements

The PIOB welcomes and supports the ongoing coordination between the IAASB and the IESBA on topics overlapping with the Code of Ethics (e.g. auditor independence, objectivity, engagement quality reviews, cooling off period for Engagement Quality Reviewers, definition of PIEs).

The requirements for the Engagement Quality Reviewers’ performance should be strengthened

According to IFIAR’s inspections Report in 2019, one of the most important findings on engagement performance and quality continues being related to the “insufficient depth/extent of engagement quality reviews.”

EQRs should be performed as the audit is being performed ("continuous quality control through the audit"), not at the end of the audit or after the auditor's report has been issued.

The PIOB acknowledges the current IAASB proposals to review the audit documentation at appropriate points in time, throughout all the stages of the engagement and on or before the date of the engagement report.

ISA 220 "Quality Management for an Audit of Financial Statements"

PIOB Recommendation:

The objective of a Quality Management System should focus on Audit Quality

The standard should state clearly that the objective of the quality management system is to produce high quality audits.

The PIOB acknowledges that the current proposals explicitly address the Engagement Partner’s responsibility to act in the public interest when performing audit engagements, however the objective of the standard continues to be compliance oriented (with professional standards and regulatory requirements) rather than focusing on audit quality.

Engagement Partner’s Responsibilities

The Engagement Partner needs to be satisfied not only that the firm’s policies and procedures have been complied with, but also applicable rules and regulations. If necessary, the engagement may need to be discontinued.

The PIOB acknowledges that the current proposals make a reference to the applicable legal and relevant ethical requirements, as well as the possibility to withdraw from the engagement.

ISA 600 Group Audits

PIOB Recommendation:

Importance of Group Audits

Group audits affect the most systematically important entities, so the project could better document the public interest issues that it intends to address.

The IAASB has clarified which key public interest issues are addressed in the project (e.g. encouraging quality management at the engagement level; fostering an independent and skeptical mindset of the auditor; reinforcing the communication during the audit between the group engagement team and the component auditors).

Cooperation between the group auditor and component auditors

The standards should make clear that close cooperation between the group auditor and the component auditors is required throughout the audit.

Documentation should address the interaction between the group auditor and the component auditors.

The ED includes a requirement that emphasizes the importance of communication between the group auditor and the component auditors on a timely basis and clarifies the relevant required documentation.

Extended External Reporting (EER)

PIOB Recommendation:

Societal impact of EER

It is important for the public to understand the IAASB’s work on EER, as EER has a very strong impact on groups that work for environmental, social and governance improvements.

The non-authoritative guidance on EER should be understandable for these stakeholders to ensure that their important input is achieved.

Less Complex Entities (LCEs)

PIOB Recommendation:

Scalability of standards for LCEs

The PIOB welcomes the IAASB initiative to explore the needs and concerns of LCEs and others. The LCEs project needs to deal with calls from Small and Medium Entities on scalability and, at the same time, ensure that assurance is not weakened.

Focus and prioritization of the workstreams on LCEs

The current proposals to revising ISAs and developing a separate standard for LCEs need to be carefully assessed. The IAASB may need to focus on one workstream (separate standard for LCEs) and prioritize it during the execution of its strategy. Resources need to be allocated efficiently to respond, on a timely basis, to the urgent needs expressed by LCEs and SMEs. The timing of the project may need to be reviewed accordingly.

Audit Evidence and Technology

PIOB Recommendation:

Importance of Technology

Technology deserves deeper consideration. Standards should be revisited to reflect the impact of technology on the audit profession. Given the pace of change, a lengthy project is not in the public interest. Non-authoritative guidance could be considered as a solution for a timely response.

Professional Skepticism (PS)

PIOB Recommendation:

Strengthening Professional Skepticism in the ISAs

At the time of the “Invitation to Comment”, the PIOB recommended that the IAASB pay attention to PS, because it relates to going concern, auditor independence, and management bias.

The PIOB welcomes placing greater focus on PS across the projects currently or recently developed by the IAASB, such as ISA 540, ISA 315, the three Quality Management Standards and Extended External Reporting. The PIOB highlights the need to consider how auditors should document PS and encourages the IAASB to further strengthen the notion of PS throughout the standards.