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On Monday, the SEC approved the new audit standard, first proposed by the PCAOB in 2022. It’ll go into effect on December 15, 2025.
The standard, officially titled Quality Control (QC) Standard 1000, A Firm’s System of Quality Control, requires audit firms to identify risks to their practices and implement procedures to address these risks. Firms must report on their QC systems to the PCAOB on a yearly basis, and two firm officers must sign off on the reports.
“Simply designing elaborate processes on paper won’t be enough,” Chair Erica Williams said about the standard, the Wall Street Journal reported. “Firm leadership will have a personal stake in delivering results and additional incentives to fix problems quickly.”
Firms that perform audits for 100 or more companies a year will need to obtain an independent evaluation of their QC procedures. They’ll also be required to start programs to monitor confidential complaints and to ensure their investments won’t create conflicts of interest.
QC 1000 is part of a broader modernization effort on the part of the PCAOB. The standards it updates have been little changed since they were implemented by the AICPA nearly 30 years ago, before Sarbanes-Oxley was passed or the PCAOB was created. The new standards are meant to address changes in the audit profession since that time, such as new technologies, the growing importance of firm networks, and the increasing role of third parties in audits.
Industry groups such as the Center for Audit Quality have raised concerns about QC 1000 and AS 1000, another proposed new standard. The PCAOB has addressed some of those reservations, noting, for instance, that the new standards would not make auditors legally liable to investors in the companies they audit.