Fact Sheet: Quality Control Proposal, QC 1000
Public Comment Open through February 1, 2023
Washington, DC, Nov. 18, 2022
On November 18, 2022, the Public Company Accounting Oversight Board issued for public comment a proposed new quality control standard, QC 1000, which the Board believes would lead registered firms to significantly improve their quality control (QC) systems.
QC systems lay the foundation for how firms conduct audits, and effective QC systems are critical to protecting investors. But the current QC standards were developed more than 20 years ago and issued by the American Institute of CPAs before the PCAOB was established. The auditing environment has changed significantly over the last 20 years, and the proposed update is designed to ensure the QC standards are effective at protecting investors in today’s economy.
As part of the research and outreach leading up to this proposal, the PCAOB issued for public comment a concept release in December 2019. That release generated dozens of comment letters from investors, investor advocates, audit firms, academics, trade groups, and others that informed this proposal. Most commenters were supportive of the overall approach presented in the concept release, which proposed QC 1000 substantially reflects.
What would QC 1000 do?
Require all registered firms to design their QC systems to comply with the proposed standard, including (1) establishing specific quality objectives outlined in the standard, (2) identifying and assessing quality risks to the achievement of those objectives, and (3) developing policies and procedures to address such risks.
Require registered firms that perform engagements, such as audits, for public companies or SEC-registered brokers and dealers to also implement and operate their QC system to comply with the proposed standard, including (1) executing the developed policies and procedures, (2) monitoring the operation of the policies and procedures, and (3) taking remedial actions where policies and procedures are not operating effectively.
What are some key improvements to existing QC standards?
Require annual reporting on QC system effectiveness to audit committees of every issuer and broker-dealer client and on a new form (“Form QC”) to the PCAOB by firms that perform or have responsibilities with respect to engagements under PCAOB standards.
Address the accurate description and disclosure of any firm-level or engagement-level information the firm may publish, such as performance metrics and statistics.
Require involvement of independent individuals in firm governance for the largest firms.
Expand the responsibility of auditors to correct deficiencies identified on engagements.
Create a new Integrity and Objectivity standard to better align the PCAOB’s ethics requirements with the new QC standard.
Require firms to have policies and procedures that address their use of technological resources.
How do I comment?
Via e-mail at [email protected], online at pcaobus.org, or via mail to Office of the Secretary, PCAOB, 1666 K Street, NW, Washington, DC 20006-2803. All comments should refer to PCAOB Rulemaking Docket Matter No. 046 in the subject or reference line and must be received by February 1, 2023.