The implications of the revised audit quality management standards on local audit firms

Abstract

PURPOSE: This study analyzed the implications that ISQM 1, ISQM 2 and ISA 220 (Revised) have on local audit firms, namely through assessing whether they address the shortcomings of the current ISQC 1 and ISA 220. Their effect on different-sized audit firms as well as the role and importance of the regulator’s and MIA’s aid is also highlighted. DESIGN: A mixed methods data collection approach was employed to achieve the research objectives. Quantitative data was collected through the distribution of an online questionnaire to local audit practitioners, whilst qualitative data was accrued through interviews with audit practitioners directly involved in the implementation process of the new standards and a QAU representative. FINDINGS: The majority of practitioners believe that theoretically, the standards reach their intended objective. However, the additional requirements may not be realistic to adhere to, especially for SMPs who do not have the required financial and human resources. Moreover, the standards may not be scalable to SMPs. Practitioners believe that the local regulator and MIA are reactive in their work. CONCLUSIONS: Whilst larger audit firms will enjoy the benefits of decreased reputational risk and heightened audit quality, SMPs will see an increase in their costs. In this regard, the government and accountancy bodies need to work hand-in-hand to provide guidance to such practitioners so that everyone can enjoy the benefits of these standards, leading to an enhancement in the local audit profession. VALUE: This study does not only serve as a guide for local auditors on the contents of the revised standards and highlights whether their concerns have been addressed, but it also puts forward the apprehensions of the smaller practitioners, which do not always have the means to voice their opinions. Regulators and educators can refer to the findings to bridge the gap between themselves and practitioners.