From Quality Control to Risk-Based Quality Management:Implementation Constraints in Hong Kong’s Smaller Audit Practices under HKSQM 1
Keywords:
ISQM 1, HKSQM 1, audit quality, small and medium-sized practices, quality management, regulatory inspection, Hong Kong, engagement quality reviewAbstract
International Standard on Quality Management 1 (ISQM 1), adopted in Hong Kong as HKSQM 1, requires firms to design and operate a proactive, risk-based system of quality management. This study examines the challenges that this model may pose for smaller Hong Kong audit practices using qualitative analysis of standards, implementation guidance, and Accounting and Financial Reporting Council (AFRC) market and inspection publications issued through September 2026. Four themes emerge: the distinction between firm-level quality-risk assessment and engagement-level audit-risk assessment; partner capacity and access to specialist expertise; oversight of external engagement quality reviewers and other providers; and monitoring and remediation. The AFRC's findings on individual audit engagements provide evidence of execution risks, but do not by themselves establish deficiencies in firms' HKSQM 1 systems. The analysis instead connects engagement observations with the regulator's explicit system-level observations and the standard's requirements. It argues that proportionality permits simpler arrangements suited to a firm's circumstances while retaining the same quality objectives. Because inspections select firms and engagements on a risk basis, the study makes no population-level or causal claims. It offers a framework for interpreting resource constraints as risks to be assessed, governed, and monitored, and develops propositions for future firm-level research.
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