How the new QM standards may affect peer review

Have you considered how the peer review process will work under the new quality management standards that firms providing audit and accounting services should implement by Dec. 15, 2025?    

The AICPA Peer Review Board (PRB) recently approved Peer Review Standards Update (PRSU) No. 2, Reviewing a Firm’s System of Quality Management and Omnibus Technical Enhancements, to better align peer review standards with the QM guidance. PRSU No. 2 made necessary revisions to peer review terminology to conform with the QM guidance, instituted adaptations to address new risk-based considerations, and clarified existing requirements.

Here are some tips on PRSU No. 2 and on how to be sure your firm is ready to pass peer review after the QM standards take effect. (See the sidebar, “The Quality Management Standards.”)

Updated peer review standards

While the new QM standards will not change the peer review process itself, they will affect the questions and inquiries firms receive from reviewers and on management responsibilities, said Jim Brackens, CPA, CGMA, AICPA vice president–Ethics & Practice Quality.

For example, while existing standards address tone at the top and the responsibility to ensure all firm members are aware of quality control standards, the new guidance contains an explicit requirement that the firm CEO or managing partner assume ultimate responsibility for the firm’s QM system.

Brackens said the CEO is required to evaluate the firm’s QM system at least annually and conclude whether the system provides the firm with reasonable assurance that the objectives of the QM system are being achieved — a conclusion peer reviewers will be seeking.

“Peer reviewers may be talking to the managing partner to ensure they really understand the process,” he said.

Brackens sees PRSU No. 2 as the first step in an ongoing process. The first peer reviews of work done under the new standards will generally not occur until 2026. That is why the PRB in 2025 will focus on issues arising from the initial implementation of the QM standards to understand what peer reviewers should be expecting and develop further guidance, he said.

Tips to follow on the path to peer review

One key piece of advice for firms is to gain awareness not simply of the QM standards’ existence but also of the significant changes they make to the firm’s approach to quality concerns. “If firms don’t know that the standard exists and what it means, they will fail their peer review,” Brackens said.

With the deadline for implementation rapidly approaching, firms should create an implementation timeline that starts now and leaves time for dealing with complications well ahead of Dec. 15, 2025, said Michael Brand, CPA, CGMA, member of BMSS Advisors and CPAs in Huntsville, Ala., who is also a member of the AICPA Private Companies Practice Section’s Technical Issues Committee and a former PRB member. “Make sure all employees are aware of the timeline and then stick with it.”

Other advice to keep firms on course for a positive peer review after the QM standards become effective include:

Don’t go it alone. Smaller firms in particular may want to join with other firms of the same size to pool their knowledge of the QM standards and brainstorm potential challenges and how to address them, said Sherry Chesser, CPA, member of Landmark PLC in Little Rock, Ark., who also is a PRB member and a former member of the AICPA Auditing Standards Board. Her 170-person firm has reached out to other firms to share insights about the standards.

Peer reviewers can also be an important source of information for firms. Brand recommended that smaller firms contact their peer reviewers to ask what they expect to see when they test important areas where expectations for firms have changed. (See the sidebar, “Take Advantage of Free Tools.”)

At the same time, peer reviewers should keep their upcoming reviews in mind as they put the QM standards to work in their own firms, Chesser said. To keep up to speed, peer reviewers can seek out new CPE or other resources to help understand challenges that may affect their own firms and their reviews.

Know which areas of the standards will present challenges. The most likely concerns include the new requirements on risk assessment, which involve firms setting quality objectives, identifying and evaluating quality risks that could make it hard to meet those objectives, and implementing responses to identified quality risks.

In the past, firms have assessed risks when performing audits of their clients, and now they must assess risks in their firm’s QM system, Brand noted, broadening the scope of the requirement and mandating more regular monitoring.

Trust your own knowledge. Chesser urged firms not to overcomplicate their processes. Instead, they should remember that they likely know many of the answers that will help them implement the standards and pass their reviews.

Even firms that deal with complicated engagements understand the challenges in each one, such as complex regulations or specific risks. Now they will need to document their struggles in these areas and how they have addressed them.

“We’re already doing a lot of what the standards require,” Chesser said. “We’re just not yet matching up our risk with our policies,” which the QM standards call for.

The power of successful implementation

The best advice is to just get started, according to Chesser, because the work done in understanding and putting the QM standards to work will ultimately lead to a smoother peer review. “If you implemented the standards correctly, it will show in your work,” she said, and be apparent in peer review. It will be clear in the firm’s output to clients and in firm documentation and workpapers. “You don’t just stumble into doing a good job,” she said. 

— Anita Dennis is a New Jersey-based freelance writer. To comment on this article or to suggest an idea for another article, contact Jeff Drew at Jeff.Drew@aicpa-cima.com.

The quality management standards

The AICPA Auditing Standards Board and Accounting and Review Services Committee released quality management standards designed to update quality control and better reflect the need for greater emphasis on risk assessment, new technology, and the growing use of external service providers.  

The quality management standards and related engagement standards are:

• Statement on Quality Management Standards (SQMS) No. 1, A Firm’s System of Quality Management;
• SQMS No. 2, Engagement Quality Reviews;
• SQMS No. 3, Amendments to QM Sections 10, A Firm’s System of Quality Management, and 20, Engagement Quality Reviews;
• Statement on Auditing Standards No. 146, Quality Management for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards; 
• Statement on Standards for Accounting and Review Services No. 26, Quality Management for an Engagement Conducted in Accordance With Statements on Standards for Accounting and Review Services; and
• Statement on Standards for Attestation Engagements (SSAE) No. 23, Amendments to the Attestation Standards for Consistency With the Issuance of AICPA Standards on Quality Management.

Firms have until Dec. 15, 2025, to establish a QM system in accordance with SQMS No. 1. The other standards are effective for engagements beginning, or for periods beginning, on or after Dec. 15, 2025.

Take advantage of free tools

Resources and information to support quality management implementation are available at aicpa-cima.com/auditqm.

They include:

• A free interactive practice aid with an accompanying Example Risk Assessment template tool to help you implement SQMS No. 1 (AICPA membership is needed to unlock this content). There are versions for sole practitioners and small- and medium-size firms;
• A document mapping the current system of quality control (SQCS No. 8) to the new system of quality management (SQMS No. 1);
• Quality management standards and related guidance; and
• A to-do checklist for firms.

Other learning opportunities as the QM standards are implemented include:

• Read the PRB meeting highlights and materials;
• Join any or all of the four-part New Quality Management Standards Webinar Series;
• Take the self-study course (eight hours of CPE) Understanding and Implementing the New Quality Management Standards; and
• Attend the AICPA Peer Review Conference July 28–30, 2025, in San Diego, for information and networking on the new standards. See full list of “CPE and Events for Peer Reviewers.”