The impact of ISQC 1 on small and medium sized practices : a field study

Abstract

Purpose: The objectives of this research centred on the need for an abridged version of ISQC 1 Redrafted (ISQC 1R), the cost implications of abiding with ISQC 1R and the extent to which these are deemed to be beneficial and the level of improvement ISQC 1R has brought about in the quality of audits. The latter is deemed to be of crucial importance since ISQC 1R forms an integral part of the local regulatory environment. Design: The objectives were achieved through the use of questionnaires, sent to a sample of local practitioners (173 SMPs). Semi-structured interviews were utilised to attain the regulator's perspective on the subject. This was backed up by an analysis of local and foreign literature. Findings: A number of practical issues with regards to the implementation of ISQC 1R have been identified. These namely relate to increasing costs and their eventual recovery. Lack of awareness with regards to the key requirements of ISQC 1R and the various implementation guides issued by IFAC were also noted. On the other hand, sustainable improvement in audit quality is evident. There is also a general consensus between participants that the demand for independent external reviewers is on the rise as opposed to peer reviews. Consultations have been identified as a key contributor towards increased costs due to the legal ramifications they may have. Nonetheless, local SMPs seem to prefer to expand their practices organically due to various competitive reasons. Conversely, they prefer mergers with legal entities. Conclusions: Within the Maltese context there tends to be a reactive approach on the part of regulators and practitioners as regards to the adoption of ISQC 1R. Central to the stability of the SMP sector in Malta is enhanced dissemination of information comple Value: The research should provide regulators with a closer insight of the day-to-day hitches faced by Small & Medium Sized Practices in complying with ISQC 1R and similar pronouncements. The findings and discussion should serve as a stepping stone for the development of an abridged version of ISQC 1R for SMPs and the introduction of Statutory Audit Exemption Levels.