The PCAOB has issued proposed new standards for quality control (QC) systems and opened the 394-page document for public comment.
Comments on the proposal will be accepted through Feb. 1, 2023.
"Quality control systems set the foundation for how firms perform their audits, so making sure those systems are effective in today's economy is essential to protecting investors," PCAOB chair Erica Y. Williams said in a news release.
The PCAOB's proposed QC standards would replace AICPA standards that the PCAOB adopted on an interim basis in 2003, shortly after the board's formation. According to the proposal, the PCAOB's proposed standards attempt to build on the basic structure of AICPA standards (SQMS No. 1) used by firms in the United States and International Auditing and Assurance Standards Board (IAASB) standards (ISQM 1) used by firms internationally.
Part of the PCAOB proposal reads: "In designing, implementing, and operating their QC systems, firms that are subject to both PCAOB standards and IAASB or AICPA QC standards — which we believe is a very substantial majority of the firms that perform engagements under our standards — could leverage the investments they make to comply with the requirements of the IAASB and/or the 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 release includes a detailed comparison of how its proposed standards compare to SQMS No. 1 and ISQM 1. While the PCAOB proposal continues to call the standards a function of "quality control," the standards feature a risk-based approach much like SQMS No. 1 and ISQM 1, which aim to move firms from a system of quality control to a system of quality management.
Both SQMS No. 1 and ISQM 1 are new quality management standards built on previously established standards for quality control. In December 2020, the IAASB released International Standard on Quality Management (ISQM) 1 and 2 and International Standard on Auditing 220 (Revised) to replace ISQC, with an effective date of Dec. 15, 2022. In June of this year, the AICPA released SQMS No. 1, A Firm's System of Quality Management, to replace SQCS, with an effective date of Dec. 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 fiscal year 2023 budget of $349.5 million (subject to SEC approval). The strategic plan is built around the board's investor-driven mission of modernizing standards, enhancing inspections, strengthening enforcement, and improving organizational effectiveness.
— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.