How audit quality is defined and what the PCAOB's QC 1000 standard requires of audit firms from December 15, 2026

These aren't easy times to be an auditor. The rapid pace of change, new regulation, complexity in accounting rules and practices, ever-widening scope of work and technology.

What is audit quality?

Audit quality is the set of key elements that create an environment in which quality audits are performed consistently.

The International Auditing and Assurance Standards Board (IAASB) defines it in A Framework for Audit Quality (2014): “The term audit quality encompasses the key elements that create an environment which maximizes the likelihood that quality audits are performed on a consistent basis.”

The IAASB says a quality audit is likely to have been achieved by an engagement team that:

• Exhibited appropriate values, ethics and attitudes
• Was sufficiently knowledgeable, skilled and experienced and had sufficient time allocated to perform the audit work
• Applied a rigorous audit process and quality control procedures that complied with law, regulation and applicable standards
• Provided useful and timely reports
• Interacted appropriately with relevant stakeholders

The responsibility for performing quality audits rests with auditors, and the IAASB says audit quality is best achieved where participants in the financial reporting supply chain support and interact appropriately with one another. The Framework is not a substitute for auditing or quality control standards and is not sufficient by itself to evaluate the quality of an individual audit.

At firm level, ISQM 1 requires a system of quality management that gives a firm reasonable assurance that it and its personnel meet their responsibilities under professional standards and legal and regulatory requirements and that engagement reports are appropriate in the circumstances. Systems of quality management had to be designed and implemented by December 15, 2022. In the US, the PCAOB sets quality control requirements for registered firms through QC 1000, covered below.

Part I.A deficiencies are audits where the evidence did not support the opinion

Part I.A deficiencies in PCAOB inspection reports, also known as Audits with Unsupported Opinions, indicate that the auditors did not have sufficient evidence to support their opinion on the financial statements.

QC 1000 replaces the PCAOB's interim quality control standards from December 15, 2026

The PCAOB has stepped in with a new standard, QC 1000, A Firm's System of Quality Control. Previously, auditing firms followed quality control standards that the PCAOB adopted on an interim, transitional basis in 2003, which were originally developed and issued by the AICPA.

The PCAOB adopted QC 1000 on May 13, 2024. Its effective date moved from December 15, 2025 to December 15, 2026 after the PCAOB postponed it on August 28, 2025. On September 9, 2026, the PCAOB adopted amendments to certain provisions of QC 1000. The amendments do not change the effective date and are subject to approval by the SEC.

QC 1000 asks firms to assess quality risks, monitor continuously and document the system

QC 1000 is a comprehensive standard designed to enhance the quality control processes within audit firms. It requires firms to identify and assess quality risks that could impact their ability to achieve quality objectives. This involves understanding the conditions, events and activities that may affect the firm's engagements and overall operations. The standard also emphasizes the importance of continuous monitoring and documentation. Firms must prepare and retain documentation of the design, implementation and operation of the system and of its annual evaluation. By integrating these elements, firms can help make their quality control processes robust and transparent.

What is an engagement quality review?

An engagement quality review is an objective evaluation of the significant judgments made by an engagement team, performed by a reviewer who is not a member of that team and completed on or before the date of the engagement report.

The IAASB defines it in ISQM 2, Engagement Quality Reviews: “An objective evaluation of the significant judgments made by the engagement team and the conclusions reached thereon, performed by the engagement quality reviewer and completed on or before the date of the engagement report.”

In plain terms, a second qualified person tests the hardest calls on an audit before the report is issued. The engagement quality reviewer is a partner, another individual in the firm or an external individual appointed by the firm.

ISQM 1 makes engagement quality reviews a specified response within a firm's system of quality management, and ISQM 2 applies to every engagement for which ISQM 1 requires one. ISQM 2 covers the appointment and eligibility of the reviewer and the reviewer's responsibilities for performing and documenting the review. It is effective for audits and reviews of financial statements for periods beginning on or after December 15, 2022.

An engagement quality review has defined limits. It is not an evaluation of whether the entire engagement complies with professional standards, legal and regulatory requirements or the firm's policies and procedures. The reviewer is not required to obtain evidence to support the engagement opinion, and the review does not change the engagement partner's responsibilities for managing and achieving quality on the engagement.

A documented system of quality control is how firms evidence audit quality

Audit quality depends on an environment that makes quality audits likely, and from December 15, 2026 QC 1000 requires registered firms to operate a documented, risk-based system of quality control. For a registered firm, the practical meaning is quality objectives linked to quality risks and responses, a system that is monitored, evaluated every year and documented. Ideagen Audit Quality Management is software for documenting a system of quality management against ISQM 1 and QC 1000.