SEC Approves New Quality Control Standard for Auditing Firms

The Securities and Exchange Commission (SEC) has approved a new quality control (QC) standard developed by the Public Company Accounting Oversight Board (PCAOB), marking a significant step forward in improving the audit practices of registered public accounting firms.

The new standard, QC 1000, titled "A Firm's System of Quality Control," establishes an integrated, risk-based approach that requires all registered public accounting firms to identify specific risks in their practice and design quality control systems to address these risks effectively.

SEC Chair Gary Gensler emphasized the importance of this development, stating, "I am pleased to approve this standard because it will improve the quality control systems of auditors, and thus better protect investors."

In response to the SEC's approval, PCAOB Chair Erica Y. Williams issued a statement highlighting the significance of the new standard:

"We thank our SEC colleagues for their review and approval of our new quality control standard. When a firm's QC system operates effectively, quality audits follow. And when QC systems operate ineffectively, investors are put at risk."

Williams further emphasized the standard's adaptability and its role in modernizing the PCAOB's approach: "Our new QC standard takes an integrated, risk-based approach that can be applied by firms of varying sizes and complexity. When put into practice, it will improve investor protection. The new standard also represents a major step forward for the Board's strategic goal to modernize standards, given that the PCAOB's current QC standards were developed and issued by the accounting profession before the PCAOB was established in 2002."

Important features of the new standard include:

1. Annual evaluation of QC systems and reporting to the PCAOB, certified by key firm personnel.
2. Requirement for firms issuing audit reports for more than 100 issuers annually to establish an external quality control function (EQCF).
3. Focus on accountability and continuous improvement in audit practices.

Paul Munter, the SEC's Chief Accountant, highlighted the standard's significance in providing critical investor protections and driving continuous improvement in firms' audit quality.

This new standard represents a substantial update to the PCAOB's quality control standards, addressing changes in the audit environment, including the increasing use of other firms and outside resources in engagements, the role of firm networks, and the evolving use of technology.

QC 1000 and related amendments to other PCAOB standards, rules, and forms will take effect on December 15, 2025, giving firms time to adapt to the new requirements.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.