Lately, the Affiliation of Worldwide Licensed Public Accountants (AICPA) launched a suite of high quality administration requirements, together with SQMS 1 and SQMS 2. Whereas SQMS No. 1 focuses on establishing a system of high quality administration, SQMS No. 2 focuses on the vital position of engagement high quality evaluations.
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What’s SQMS 2?
SQMS No. 2: Engagement High quality Evaluations units out the necessities and steerage for corporations to conduct an engagement high quality overview (EQR). Moreover, the usual gives steerage for the {qualifications}, eligibility, tasks, and appointment of an engagement high quality reviewer (EQ Reviewer). Whereas the extant (SQCS No. 8) included each High quality Management Insurance policies and the Engagement High quality Management Evaluate (EQCR), SQMS 2 was created as a separate customary to emphasise the significance of the EQR to the system of high quality administration.
That is additionally half of a bigger shift from a “high quality management” or “policies-based” mindset to a complete “high quality administration” or “systems-based” strategy. SQMS 2 works alongside SQMS 1 and the revised engagement-level requirements (like SAS 146, SSARS 26, and SSAE 23) to create a sturdy, proactive system of high quality administration that permeates each degree of the agency.
Why does SQMS 2 matter?
Elevating the bar on high quality:
SQMS 2 formalizes and strengthens the engagement high quality overview course of by way of clarified steerage and enhanced documentation necessities. It additionally differentiates the tasks of the agency and the Engagement High quality Reviewer. Lastly, the usual gives extra steerage for individuals who help with the EQR and the EQ Reviewer’s tasks for his or her work.
Enhancing independence and objectivity:
SQMS 2 requires that EQRs be carried out by people with ample authority, technical competence, functionality (together with time), and objectivity. The usual additionally clarifies which engagements require an EQR (as a specified response to SQMS 1, related moral necessities, or legal guidelines and laws), and the EQ Reviewer’s tasks.
New and enhanced EQ reviewer necessities:
SQMS 2 contains specific necessities for evaluating vital judgments made, conclusions reached, and ample acceptable engagement companion involvement, and different key selections as they relate to the engagement. Moreover, the usual outlines particular minimal gadgets to overview based mostly on the engagement sort (audit, overview, and so on.). The EQ Reviewer should additionally notify the engagement companion when the EQR is full.
Further agency necessities:
The agency is required to determine tips for performing procedures at acceptable factors within the engagement and the engagement companion’s tasks for the EQR. The agency also needs to put together procedures to make sure that the engagement report just isn’t launched till the EQR is full. Moreover, the agency is accountable for establishing a course of for when the EQ Reviewer’s eligibility is impaired.
Enhanced documentation necessities:
Documentation necessities embrace key particulars such because the names of the EQ Reviewer and assistants, identification of the documentation reviewed, foundation for the willpower, date accomplished, and different notifications. The agency should additionally set up tips to make sure that a correct EQR occurs.
Aligning with different high quality administration requirements:
SQMS 2 is designed to work hand-in-hand with SQMS 1 (which addresses the agency’s system of high quality administration) and the newest engagement requirements (akin to SAS 146, SSARS 26, and SSAE 23). Collectively, they type a complete framework that addresses high quality at each the agency and engagement ranges.
Why corporations want to concentrate
1. It’s not enterprise as common
SQMS 2 isn’t just an replace—it’s a metamorphosis. It strikes away from a guidelines “rules-based” mindset and expects corporations to tailor their EQR insurance policies and procedures based mostly on their distinctive dangers and circumstances. Companies should perceive these new expectations and be able to implement extra rigorous and documented engagement evaluations.
2. It’s not only for audits
SQMS 2 clarifies that an EQR can embrace extra engagement varieties than audits. It’s the agency’s duty to determine tips for which engagements require an EQR.
3. Implementation is imminent
With an efficient date for engagements for intervals starting on or after December 15, 2025, corporations ought to work to have insurance policies and procedures established by December 15, 2025. Companies that wait till the final minute threat non-compliance. Permit time for suggestions, inside coaching, and questions.
4. It impacts all ranges of the agency
Whereas SQMS 2 is targeted on the EQR, its implementation requires coordination amongst engagement companions, the engagement crew, and high quality administration personnel. Coaching, useful resource allocation, and inside monitoring will should be revisited.
5. It’s about greater than compliance
At its core, SQMS 2 is about bettering engagement high quality. It encourages a tradition of high quality, vital analysis, {and professional} skepticism—all of that are important for sustaining belief within the career.
Key takeaways from SQMS 2
- Perceive the scope: Not each engagement requires an EQR, however when it does, the necessities are clear and should be adopted.
- Put together your groups: Prepare engagement companions, their groups, and high quality reviewers on the brand new requirements and their sensible implications.
- Evaluate independence insurance policies: Replace insurance policies to replicate the clarified independence and eligibility standards for EQ Reviewers.
- Doc, doc, doc: SQMS 2 locations higher emphasis on documentation of the EQR course of, findings, and conclusions.
- Embrace the chance: Whereas the brand new requirements elevate the bar, in addition they supply an opportunity to construct stronger, extra resilient follow.
Conclusion: Embracing SQMS 2
SQMS 2 is a vital piece of the brand new high quality administration puzzle. It goes past compliance to bolster the career’s public curiosity mandate: offering impartial, high-quality engagements that stakeholders can belief. By understanding and embracing SQMS 2 now, corporations can be certain that they don’t seem to be solely compliant but in addition leaders in engagement high quality.
To be taught extra about these requirements and methods to implement them, be a part of our upcoming QM trainings on 9/19, 10/8 and 11/21 or Contact us as we speak to be taught extra about our coaching packages and the way AuditWatch can assist your agency succeed.
