SEC Approves PCAOB’s Groundbreaking Quality Control Standard QC 1000
The Securities and Change Commission (SEC) has formally approved the new quality control standard of the Public Enterprise Accounting Supervisory Board (PCAOB), QC 1000, Signature Quality Control System. This historical standard is intended to improve the quality of the audit by obliging companies registered by the PCAOB to identify specific risks that could compromise the quality of the audit, such as potential problems arising from technology-based audit instruments. To mitigate these risks, companies need to develop strong quality control systems with clear policies and procedures tailored to their unique business landscape. This rule comes into force on December 15, 2025.
The main provisions include the introduction of an external supervisory function, or CECQ, for companies that audit more than 100 public enterprises each year. This function, made up of professionals capable of conducting independent tests, will evaluate the important tests and conclusions of a company’s quality control system. According to PCAOB President Erica Williams, this integrated risk-based approach ensures that quality control systems can be adapted to companies of different sizes and complexities, while increasing investor protection. In 2023, only 14 companies reached the audit threshold of over 100 issuers per year, highlighting the adapted applicability of the new requirements.
The QC 1000 approval generated mixed reactions. SEC President Gary Gensler expressed strong support, stressing its importance for investor protection and improved audit quality. Similarly, SEC Chief Accountant Paul Munter praised the standard for striking a balance between rigour and flexibility, adapted to varying scale companies. However, dissenting voices, including SEC Commissioners Mark Uyeda and Hester Peirce, raised concerns about the indefinite scope of the CECQ and the potential burden on small businesses. Peirce questioned the role and responsibility of the QECC and asked whether the mandate imposes unnecessary costs, particularly on the small audit practices without active engagement of the QECC. Uyeda highlighted the financial tension of the “design only” requirement for companies that do not currently participate in PCAOB-regulated audits.
This modernization marks a significant change in the current quality control standards of the PCAOB, originally developed by AICPA prior to the creation of the PCAOB in 2002. QC 1000 aligns with the Office’s strategic objective of modernizing its standards in line with changing audit environments. Williams reiterated the BBCP’s commitment to build investor confidence through quality audits, highlighting the risks posed by ineffective quality control systems. As the standard is established, companies are urged to prepare for its implementation, including annual evaluation and reporting on their quality control systems using the new QC form.
Source: https: / / www.cpapracticaladvisor.com / 2024 / 09 / 10 / sec-green -lights-new-pcaob-quality-control-standard / 110222 /
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