Auditors Face New Quality Control Standard

Heads up: Public accounting firms will need to implement (or update existing) quality control protocols. And they must reevaluate their quality programs on an annual basis under a recently announced accounting standard.

The Quality Control (QC) 1000 standard was adopted by the Public Company Accounting Oversight Board (PCAOB) on May 13. QC 1000 is an “integrated, risk-based standard … [that applies] to all registered public accounting firms,” according to PCAOB.

An accounting firm that audits more than 100 clients — either publicly traded companies or brokers/dealers — per year is required to establish “an external oversight function” for its QC system. Oversight can provided by one or more people who are independent of the firm (in other words, a third party).

At a minimum, the QC oversight should evaluate “significant judgments made and related conclusions reached by the firm when evaluating and reporting on the effectiveness of its QC system.” The buck stops with the auditor 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.”

PCAOB created a new QC form for annual evaluations and reporting the results to the board. QC 1000 will go into effect on December 15, 2025 if approved by the Securities and Exchange Commission. PCAOB is a nonprofit corporation established by Congress to oversee audits of public companies to protect investors under the Sarbanes-Oxley Act of 2002.

Auditors Studying Additional PCAOB Standard

A few weeks back, PCAOB announced it was eliminating the 45-day grace period for filing financial reports after completing an audit. The board shortened the filing deadline to 14 days after an audit is finished with its new integrated accounting standard (AS) 1000.

The new 14-day filing deadline for filing financial statements goes into effect on December 15. Smaller accounting companies will have until December 15, 2025 to begin complying with the 14-day deadline. AS 1000 doesn’t include any new principles or responsibilities for accounting firms to comply with.