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The Profession12 September 20266 min read

SQM 1 and SQM 2 Deferred, SQC 1 Continues: What ICAI Said and What It Did Not

A date moved. The standards did not, and SQC 1 stays in force until ICAI says otherwise.

In short
  • At its 451st meeting on 30 and 31 March 2026, ICAI's Council deferred the mandatory effective date of SQM 1 and SQM 2 until further announcement.
  • Until a further announcement SQC 1 continues to apply, and no new mandatory date has been set.
  • When it applies, SQM 1 asks for a risk-based system across eight components, evaluated at least annually, with engagement quality reviews for listed-entity audits.
A September desk calendar on a wooden stand beside a potted plantPhotograph: Blessing Ri / Unsplash

On 31 March 2026, the day before SQM 1 and SQM 2 were to become mandatory, ICAI announced that they would not. The Council, at its 451st meeting on 30 and 31 March 2026, deferred their mandatory effective date "until further announcement". Until then, in the announcement's words, "the extant SQC 1 shall continue to remain applicable."

The two standards

  • SQM 1, "Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements".
  • SQM 2, "Engagement Quality Reviews".

Both were to come into effect from 1 April 2026 and replace SQC 1.

What the announcement settles, and what it leaves open

It settles three things: the mandatory date is deferred, no new date is set, and SQC 1 applies meanwhile. It was issued by the Auditing and Assurance Standards Board.

It does not give a reason for the deferral, does not address voluntary or early adoption, and does not amend either standard. A new date, a reason or a regulator's view may appear elsewhere, but none of them is in ICAI's announcement.

Where it stands

Where it stands

SQM 1, SQM 2 and SQC 1, in order

  1. 1 April 2025SQM 1, recommendatory track: systems of quality management designed and implemented by this date, evaluated within a year.SQM 1, paragraph 13
  2. 1 April 2026SQM 1 and SQM 2 were to become mandatory, replacing SQC 1.Deferred
  3. 30 and 31 March 2026ICAI's Council, at its 451st meeting, defers the mandatory effective date until further announcement.Announced 31 March 2026
  4. NowSQC 1 continues to remain applicable. No new mandatory date has been announced.In force: SQC 1

SQM 1 as issued by ICAI, paragraph 13; ICAI Auditing and Assurance Standards Board, announcement of 31 March 2026.

SQM 1 had set two tracks in paragraph 13. As a recommendatory standard, systems of quality management were to be designed and implemented by 1 April 2025, with the evaluation in paragraphs 53 and 54 performed within one year. As a mandatory standard, the same was to happen by 1 April 2026, with the evaluation within one year after that. The deferral is of the mandatory date.

What SQM 1 asks of a firm

When it does apply, SQM 1 changes the shape of quality control more than its content.

  • Eight components. Paragraph 6 lists them: the firm's risk assessment process; governance and leadership; relevant ethical requirements; acceptance and continuance of client relationships and specific engagements; engagement performance; resources; information and communication; and the monitoring and remediation process.
  • A risk-based approach. Paragraph 8 builds the standard on quality objectives, the quality risks to those objectives, and responses designed for those risks, operated together rather than as separate policies.
  • An annual conclusion. Paragraph 9 requires that, at least annually, the individual or individuals assigned ultimate responsibility and accountability for the system evaluate it and conclude whether it gives the firm reasonable assurance that its objectives are being achieved.
  • Scaled to the firm. Paragraph 10 expects a firm that audits listed entities to need a more complex and formal system than one that only performs reviews or compilations.
  • Engagement quality reviews. Paragraph 34(f) requires an engagement quality review for audits of financial statements of listed entities, for engagements where law or regulation requires one, and for engagements where the firm decides a review is an appropriate response to a quality risk. SQM 2 deals with the appointment and eligibility of the reviewer and with performing and documenting the review (paragraph 2(b)).

At the engagement level, SQM 1 points to SA 220 (Revised), "Quality Management for an Audit of Financial Statements" (paragraph 3).

What to take from it

  • The quality control standard in force is SQC 1, until ICAI announces otherwise.
  • The deferral moves a date. SQM 1 and SQM 2 remain issued standards, and the announcement does not change what they require.
  • The next word will be an ICAI announcement. Anything else is commentary.

Questions this answers

Are SQM 1 and SQM 2 mandatory from 1 April 2026?

No. ICAI's Council deferred their mandatory effective date until further announcement, at its 451st meeting on 30 and 31 March 2026.

Which quality control standard applies now?

SQC 1. ICAI's announcement of 31 March 2026 says the extant SQC 1 shall continue to remain applicable until a further announcement.

Has ICAI announced a new date for SQM 1 and SQM 2?

Not in its announcement of 31 March 2026, which defers the mandatory date until further announcement.

What are the eight components of SQM 1?

The firm's risk assessment process; governance and leadership; relevant ethical requirements; acceptance and continuance; engagement performance; resources; information and communication; and the monitoring and remediation process.

Which engagements need an engagement quality review under SQM 1?

Audits of financial statements of listed entities, engagements where law or regulation requires one, and engagements where the firm decides a review is an appropriate response to a quality risk.