PCAOB Adopts New Quality Control Standard With a Risk-Based Approach Designed to Drive Continuous Improvement in Audit Quality

The Public Company Accounting Oversight Board (PCAOB) today adopted a new standard designed to lead registered public accounting firms to significantly improve their quality control (QC) systems. The new standard would require all PCAOB registered firms to identify their specific risks and design a QC system that includes policies and procedures to guard against those risks.

The PCAOB’s current QC standards were developed and issued by the American Institute of Certified Public Accountants before the PCAOB was established in 2002. Given the significant changes in the auditing environment since that time, QC has been a top modernization priority for the PCAOB.

“When quality control systems operate effectively, quality audits follow, and investors are better protected,” said PCAOB Chair Erica Y. Williams. “We thank all the commenters who provided us with valuable perspectives on enhancing our approach to quality control, and we look forward to monitoring the new standard’s implementation and impact.”

Key Provisions of the New Standard

• The new standard strikes a balance between a risk-based approach to QC (which should drive firms to proactively identify and manage the specific risks associated with their practice) and a set of mandates (which should assure that the QC system is designed, implemented, and operated with an appropriate level of rigor).
• All PCAOB-registered firms would be required to design a QC system that complies with the new standard. Firms that perform audits of public companies or SEC-registered brokers and dealers would be required to implement and operate the QC system they design, monitor the system, and take remedial actions where policies and procedures are not operating effectively – creating a continuous feedback loop for improvement.
• Those firms would be required to annually evaluate their QC system and report the results of their evaluation to the PCAOB on new Form QC, which would be certified by key firm personnel to reinforce individual accountability.
• Firms that audit more than 100 issuers annually would be required to establish an external oversight function for the QC system, referred to as an External QC Function (EQCF), composed of one or more persons who can exercise independent judgment related to the firm’s QC system. In response to comments, the new standard clarifies that the EQCF’s responsibilities should include, at a minimum, evaluating the significant judgments made and the related conclusions reached by the firm when evaluating and reporting on the effectiveness of its QC system.

The Board carefully considered the potential for improvements to PCAOB QC standards through efforts that included discussion of the topic with the PCAOB advisory groups, issuance of a December 2019 concept release, and releasing a November 2022 proposal for public comment. These actions generated robust stakeholder input that, along with the PCAOB’s own economic analysis, helped to inform the new standard.

Information on the history of this project, including historical documents and comments received, can be found in Rulemaking Docket 046 and the related Standard-Setting Project page.

The new standard will apply to all PCAOB-registered firms. Subject to approval by the U.S. Securities and Exchange Commission, the new standard and related amendments will take effect on December 15, 2025.

For more information regarding the PCAOB’s standard-setting activity, visit our Standards page.

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About the PCAOB

The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers registered with the Securities and Exchange Commission, including compliance reports filed pursuant to federal securities laws.

Contact

PCAOB Office of Communications and Engagement
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