SEC Approves a New PCAOB Quality Control Standard

September 09, 2024 09:08 AM PDT | By Invezz

SEC Approves a New PCAOB Quality Control Standard — Image source: Invezz

September 09, 2024 12:08 PM EDT | Source: Newsfile SEC Press Digest

Washington, D.C.–(Newsfile Corp. – September 9, 2024) – The Securities and Exchange Commission today approved the Public Company Accounting Oversight Board’s (PCAOB) new quality control (QC) standard and related amendments to its standards, rules, and forms.

QC 1000, A Firm’s System of Quality Control, establishes an integrated, risk-based quality control standard that will require all registered public accounting firms to identify specific risks to their practice and design a quality control system that includes appropriate responses to guard against those risks. Registered firms that perform engagements under PCAOB standards will be required to implement and operate the QC system. The new quality control standard focuses on an audit firm’s accountability and continuous improvement of its audit practice and will require an annual evaluation of the firm’s QC system and related reporting to the PCAOB, certified by key firm personnel. In addition, firms that annually issue audit reports for more than 100 issuers will be required to establish an external quality control function (EQCF) composed of one or more persons who can exercise independent judgment related to the firm’s QC system.

“An auditing firm is ultimately a professional services firm, and it needs to ensure the quality of the services it provides,” said SEC Chair Gary Gensler. “I am pleased to approve this standard because it will improve the quality control systems of auditors, and thus better protect investors.”

Current PCAOB quality control standards were developed almost 30 years ago by the American Institute of Certified Public Accountants before the accounting fraud scandals of the early 2000s that led to the creation of the PCAOB pursuant to the Sarbanes-Oxley Act of 2002. QC 1000 addresses changes in the audit practice environment since that time and leverages what the PCAOB has learned through two decades of experience in its inspections and enforcement programs, including, for example, the increasing participation of other firms and other outside resources in firm engagements, the role of firm networks, and the evolving use of technology.

“Effective QC systems provide critical investor protections by driving continuous improvement in firms’ audit quality in support of the issuance of informative, accurate, and independent audit reports,” said Paul Munter, the SEC’s Chief Accountant. “QC 1000 is an integrated risk-based QC standard that strikes an appropriate balance that can be applied by firms of varying sizes and complexities along with a set of mandates tailored to the size of the firms’ audit practices, which should assure that QC systems are designed, implemented, and operated with an appropriate level of rigor.”

QC 1000 and the related amendments to other PCAOB standards, rules, and forms will take effect on Dec. 15, 2025.

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