Proposed ISQM 1

1. Proposed ISQM 1 Karin French, Quality Control Task Force Chair IAASB Meeting, New York Agenda Item 2 December 10, 2018

2. Objective and Definitions Paragraph References for IAASB Discussion Requirements: 21 – 22 Application material: A6 – A15 IFIAR • Definition of deficiencies very technical Offline board comments – additional board input • Many concerns with the definition of deficiencies – new proposal developed by QCTF for Board consideration

3. General Requirements Paragraph References for IAASB Discussion Requirements: 23 – 25 Application material: A16 – A22

4. Governance and Leadership Paragraph References for IAASB Discussion Requirements: 26 – 28 Application material: A23 – A45 IOSCO • Firms having independent members form part of their leadership IFIAR • Suggested more explicit reference to commercial pressures • Suggested addressing external pressures, including from the wider market • Incorporate professional skepticism as a main aspect in the culture of the firm

5. Governance and Leadership (continued) IESBA • Responsibility for independence - the approach in proposed ISQM 1 is too general and cursory and does not address responsibility for independence to an adequate level of specificity • Suggestion that it should be broader, i.e., responsibility for relevant ethical requirements

6. The Firm’s Risk Assessment Process Paragraph References for IAASB Discussion Requirements: 29 – 34 Application material: A46 – A64 IFIAR • Is it sufficiently clear that firms need to achieve all of the quality objectives, and the standard has a comprehensive list of objectives? • Are quality risks that are less likely to occur included? • Results of regulatory findings – are these a consideration in identifying quality risks? • Does standard addresses all of extant requirements and issues highlighted in the ITC? • Are there enough prescribed responses to support consistent and appropriate application?

7. The Firm’s Risk Assessment Process (continued) Offline board comments – additional board input • Requirement to establish additional quality objectives – new proposal developed by QCTF for Board consideration

8. Relevant Ethical Requirements Paragraph References for IAASB Discussion Requirements: 35 – 36 Application material: A65 – A74 IESBA • Concerns that the standard does not sufficiently address network independence

9. Acceptance and Continuance Paragraph References for IAASB Discussion Requirements: 37 – 38 Application material: A75 – A91

10. Engagement Performance Paragraph References for IAASB Discussion Requirements: 39 – 40 Application material: A92 – A114

11. Resources Paragraph References for IAASB Discussion Requirements: 41 Application material: A115 – A136 Offline board comments – additional board input • Should this section include a general requirement to design and implement responses?

12. Information and Communication Paragraph References for IAASB Discussion Requirements: 42 – 43 Application material: A137 – A155 Offline board comments – additional board input • Requirement to communicate externally – new proposal developed by QCTF for Board consideration

13. Monitoring and Remediation Paragraph References for IAASB Discussion Requirements: 44 – 58 Application material: A156 – A192 IOSCO • How are IFIAR inspection findings “targets” dealt with in the standard? IFIAR • Should this be dealt with in a separate standard, like ISQM 2, in order to provide more detail? • Will inspection of completed engagements be retained, albeit that in-process reviews have been introduced? • Should the root cause analysis also be undertaken on positive findings?

14. Monitoring and Remediation (continued) Offline board comments – additional board input • Should the cyclical inspection of engagement partners be extended to include in-process reviews, and not only completed engagements? • Is the requirement to undertake the evaluation of the system in paragraph 57 clear regarding what is considered “more frequently”? • Should the “more frequently” be retained? • Is more guidance needed on the meaning of “more frequently” and if so how should this be explained?

15. Network Requirements or Network Services Paragraph References for IAASB Discussion Requirements: 59 – 64 Application material: A193 – A205 IFIAR • Concerned over robustness, use of “determine” in paragraph 60 is not sufficiently robust – perhaps needs to be assess or evaluate Offline board comments – additional board input • Requirement to consider the effect on the FRAP and the appropriateness of network requirements or services: • Should this requirement remain • If so, should it be changed to “evaluate the effect…on the SOQM”

16. Service Providers Paragraph References for IAASB Discussion Requirements: 65 – 66 Application material: A206 – A211

17. Documentation Paragraph References for IAASB Discussion Requirements: 67 – 70 Application material: A212 – A215

18. Introduction Paragraph References for IAASB Discussion Requirements: 1 – 20 Application material: A1 – A5C IOSCO • General comment: Heading in the right direction • Did we consider defining public interest? IFIAR • Suggestion that description of public interest in paragraph 7 be aligned with proposed ISA 220 (Revised)

19. Introduction (continued) Offline board comments – additional board input • Many comments on the explanation of the FRAP in paragraph 10 – new proposal developed by QCTF for Board consideration • Does the Board think there could be circumstances when the responses in the standard would be enough? • Should the standard address positive outcomes in the introduction and monitoring and remediation, i.e., identifying and understanding the positive outcomes and deciding on whether enhancements should be made to the SOQM to drive better quality overall? • If so, what would this look like and how do we define “positive outcomes”?

20. Appendix 1 Paragraph References for IAASB Discussion: 1 – 22