PCAOB Proposes New Quality Control Standards

The PCAOB released proposed new standards for quality control (QC) systems and opened the 394-page document for public comment.

Comments on the proposal will be accepted until February 1, 2023.

“Quality control systems lay the foundation for how companies conduct their audits, so ensuring these systems are effective in today’s economy is critical to protecting investors,” said the PCAOB chair, Erica Y. Williams, in a press release.

The PCAOB’s proposed QC standards would replace the AICPA standards that the PCAOB tentatively adopted in 2003, shortly after the board was formed. According to the proposal, the standards proposed by the PCAOB attempt to build on the basic structure of the AICPA standards (SQMS No. 1) used by firms in the United States and the standards of the International Auditing and Assurance Standards Board (IAASB) (ISQM 1) used by firms. internationally.

Part of the PCAOB proposal reads: “In the design, implementation and operation of their QC systems, firms that are subject to both PCAOB standards and IAASB or AICPA – which we believe represent a very large majority of firms that perform engagements under our standards – could benefit from the investments they make in complying with IAASB requirements and /or AICPA and avoid the additional costs that would be associated with designing, implementing, and operating fundamentally different and potentially conflicting approaches to QC.

The PCAOB’s version includes a detailed comparison of how its proposed standards compare to SQMS #1 and ISQM 1. While the PCAOB’s proposal continues to call the standards a “quality control” feature , the standards present a risk-based approach much like SQMS No. 1 and ISQM 1, which aim to move companies from a quality control system to a quality management system.

SQMS No. 1 and ISQM 1 are new quality management standards based on previously established standards for quality control. In December 2020, the IAASB published International Standard on Quality Management (ISQM) 1 and 2 and International Standard on Auditing 220 (Revised) to replace the ISQC, with an effective date of 15 December 2022. In June of this year, the AICPA published SQMS #1, A company’s quality management system, to replace the SQCS, with an effective date of December 15, 2025. By design, SQMS No. 1 closely aligns with the new IAASB standards.

Also on Friday, the PCAOB approved its 2022-2026 strategic plan and approved its $349.5 million budget for fiscal year 2023 (subject to SEC approval). The strategic plan is built around the council’s investor-focused mission to modernize standards, improve inspections, strengthen enforcement and improve organizational effectiveness.

— To comment on this article or suggest an idea for another article, contact Bryan Strickland at [email protected].

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