The PCAOB Made Its Own Quality Control Standard and It Took Only 22 Years

The PCAOB announced today that after the more than 20 years since they were forged out of the ashes of the Enron debacle, they’ve finally developed their own quality control standards. Existing quality control standards were developed by the AICPA prior to 2002 and they just couldn’t have that. “Given the significant changes in the auditing environment since that time, QC has been a top modernization priority for the PCAOB,” reads the press release.

The new quality control standard requires PCAOB-registered firms to identify their specific risks and then ensure their QC system adequately protects against those risks with appropriate policies and procedures.

The new standard supersedes current PCAOB quality control standards with an “integrated, risk-based standard,” QC 1000, A Firm’s System of Quality Control and applies to all registered firms. See: PCAOB Rulemaking Docket Matter No. 046 (PDF).

Additionally the standard will:

• expand the auditor’s responsibility to monitor for and respond to deficiencies on completed engagements under an amended and retitled AS 2901, Responding to Engagement Deficiencies After Issuance of the Auditor’s Report, and related amendments to attestation standards for broker-dealer engagements;
• supersede existing PCAOB standard ET 102, Integrity and Objectivity, with a new standard, EI 1000, Integrity and Objectivity, to better align ethics requirements with the scope, approach, and terminology of QC 1000

Here are the key provisions of the new QC standard as summarized by the PCAOB and bolded by us:

• The new standard strikes a balance between a risk-based approach to QC (which should drive firms to proactively identify and manage the specific risks associated with their practice) and a set of mandates (which should assure that the QC system is designed, implemented, and operated with an appropriate level of rigor).

• All PCAOB-registered firms would be required to design a QC system that complies with the new standard. Firms that perform audits of public companies or SEC-registered brokers and dealers would be required to implement and operate the QC system they design, monitor the system, and take remedial actions where policies and procedures are not operating effectively – creating a continuous feedback loop for improvement.

• Those firms would be required to annually evaluate their QC system and report the results of their evaluation to the PCAOB on new Form QC, which would be certified by key firm personnel to reinforce individual accountability.

Oh yay another form! Way to perpetuate that paper-pushing reputation, P.

• Firms that audit more than 100 issuers annually would be required to establish an external oversight function for the QC system, referred to as an External QC Function (EQCF), composed of one or more persons who can exercise independent judgment related to the firm’s QC system. In response to comments, the new standard clarifies that the EQCF’s responsibilities should include, at a minimum, evaluating the significant judgments made and the related conclusions reached by the firm when evaluating and reporting on the effectiveness of its QC system.

“When quality control systems operate effectively, quality audits follow, and investors are better protected,” said PCAOB Chair Erica Y. Williams. “We thank all the commenters who provided us with valuable perspectives on enhancing our approach to quality control, and we look forward to monitoring the new standard’s implementation and impact.”

The new standard is subject to approval by the U.S. Securities and Exchange Commission. Assuming that goes ahead, it takes effect on December 15, 2025.

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