In our letter submitted in response to the PCAOB’s proposal, A Firm’s System of Quality Control and Other Proposed Amendments to PCAOB Standards, Rules, and Forms, we support the Board’s use of the International Standard on Quality Management (ISQM) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements, as the basis for its proposed standard. We voiced some concerns in our letter, however, about (1) certain proposed requirements that are incremental to ISQM being overly prescriptive in light of the wide spectrum of accounting firms that would be impacted by the requirements, and (2) whether the anticipated investment of time and cost might not yield benefits commensurate with those investments.
We also noted that the foundational concept of “professional judgment,” which is implicit in the PCAOB’s rules and engagement standards for identifying risks and developing appropriate responses, appears to be absent from the proposal. We asked the Board to explicitly incorporate the notion of professional judgment into the proposed requirements to reiterate the importance that professional judgment plays in the design, implementation, and operation of an effective system of quality control.
In addition, we noted that comprehensive and timely guidance from the PCAOB is particularly important due to the extent of the proposed requirements that are incremental to ISQM 1. The Board plays a crucial role in protecting the public interest, and, in this regard, clear and comprehensive PCAOB-specific guidance is undeniably imperative.
To read our in-depth comments in full, download our comment letter.