GROW
Applying the Quality Management Standards at the Engagement Level
By Mike Manspeaker, CPA and the A&A Resource Group
In June 2022, the AICPA Auditing Standards Board (ASB) issued Statement on Quality Management Standards (SQMS) No. 1, A Firm’s System of Quality Management, which is codified as QM Section 10.
All firms who perform engagements under standards issued by the ASB or the AICPA Accounting and Review Services Committee (ARSC) are required to design and implement a system of Quality Management (QM) by December 15, 2025. The SQMS documents are accompanied by related Statements on Auditing Standards, Statements on Standards for Attestation Engagements, and Statements on Standards for Accounting and Review Services. The SQMS prescribes the process by which a firm designs their QM system, which includes the establishment of quality objectives, a risk assessment process, and designing policies and procedures, or responses, to any risk that a quality objective will not be achieved. The ASB also issued SQMS NO. 2, Engagement Quality Reviews, which applies when the firm decides that an engagement quality review is an appropriate response to a quality risk.
The objectives of the quality management system are to provide the firm with reasonable assurance that the firm and its personnel fulfill their responsibilities in accordance with professional standards and legal and regulatory requirements so that engagements are conducted in accordance with these standards and requirements and engagement reports issued by the firm are appropriate.
Achieving these objectives requires that each of the firm’s engagement teams, led by an engagement partner, implement the firm’s responses to quality risks as they are applicable to each engagement. In other words, the applicable aspects of the firm’s overall QM system must be implemented on each and every engagement.
The guidance for implementing QM at the engagement level naturally varies by the type of engagement. Therefore, we have separate standards for managing quality at the engagement level for audits, SSARs engagements and attestation engagements. Statement on Auditing Standards No. 146, Quality Management for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards (SAS 146) addresses the responsibilities of the auditor regarding quality management at the engagement level of an audit of financial statements. Statement on Standards for Accounting and Review Services No. 26, Quality Management for an Engagement Conducted in Accordance With Statements on Standards for Accounting and Review Services (SSARS 26), and Statement on Standards for Attestation Engagements No. 23, Amendments to the Attestation Standards for Consistency With the Issuance of AICPA Standards on Quality Management (SSAE 23) were adapted from SAS 146 to address engagement level quality management for SSARs and attestation engagements.
These three standards are the “engagement level QM standards” and are designed to leverage the firm’s system of quality management, and address how quality is managed at the engagement level. An overview of the engagement level QM standards follows.
The Role of the Engagement Partner
Summary
A properly designed and implemented system of quality management should provide the firm with appropriate leadership and resources and determine that ethical requirements are complied with. The QM system should help the firm identify appropriate client relationships and engagements and identify through monitoring where the QM system design or compliance needs remediation.
However, a critical part of performing quality engagements and issuing appropriate reports are the standards that make sure the QM system is appropriately applied to each and every engagement. That is the role of SAS 146, SSARs 26 and SSAE 23, the engagement level QM standards.
Mike Manspeaker, CPA
Mike Manspeaker, CPA Michael P. (Mike) Manspeaker works with SEK, CPAs, and Advisors in the Assurance practice and is a member of the AICPA Auditing Standards Board. In addition, Mike is a past member of the AICPA Accounting and Review Services Committee (ARSC) and Technical Issues Committee (TIC). Mike is very involved with the peer review process and is currently the CPA on Staff for Coastal Peer Review (MD and NC). He is a past chair of the Maryland Association of CPAs and the Maryland Peer Review Committee. He has worked with manufacturing, retirement plans, construction, financial institutions, and nonprofit clients. His expertise also includes business and strategic planning, mergers & acquisitions, employee stock ownership plans, internal controls, and governance structures of business entities.
