Policy required document Financial
CPA Firm System of Quality Management Documentation
Statement on Quality Management Standards No. 1 replaced the AICPA's quality control standard for every firm that performs audits, reviews, or other attest and assurance engagements under AICPA standards.
The firm must design, implement and operate a system of quality management built on eight components, set quality objectives, identify and assess quality risks, design responses, monitor the system, remediate deficiencies, and have the person with ultimate responsibility evaluate the system at least annually and conclude whether it provides reasonable assurance.
The standard is explicit that the system must be documented: the firm records its quality objectives, quality risks, responses, monitoring activities, deficiencies and remediation, the annual evaluation and its basis, and the communication of policies to personnel. Peer reviewers under the AICPA Peer Review Program test the documented system.
Firms had to have the system in place by December 15, 2025 and complete the first annual evaluation within one year after that.
Obligation ledger
Who requires it, and what each one says.
| Source | Applies when | What it requires | Status |
|---|---|---|---|
| AICPA SQMS No. 1, A Firm's System of Quality Management SQMS No. 1, paragraphs on the eight components and documentation | Firm performs engagements under AICPA auditing, review or attestation standards | Design, implement and operate a system of quality management with eight components; document the system including quality objectives, risks, responses, monitoring, remediation and the annual evaluation; communicate policies to personnel. Professional standard, enforceable through AICPA and state board rules that incorporate it. | Mandatory |
| AICPA SQMS No. 1, annual evaluation SQMS No. 1, evaluation of the system | At least annually from the system's effective date | The individual with ultimate responsibility evaluates the system as of a point in time and concludes whether it provides reasonable assurance that its objectives are achieved; the conclusion and basis are documented. Professional standard. | Mandatory |
| AICPA SQMS No. 2 and SQMS No. 3 Engagement quality reviews; amendments to SQMS 1 | Firm performs engagements requiring engagement quality review | Policies for appointing and conducting engagement quality reviews and for the reviewer's documentation. Professional standard. | Mandatory |
| AICPA Peer Review Program standards Peer Review Standards, system review | Firm enrolled in peer review (required by most state boards for attest practice) | Peer reviewer evaluates the design of and compliance with the documented system of quality management and reports findings. Enforcement mechanism, with a state licensure consequence. | Attestation |
| State boards of accountancy State rules incorporating AICPA standards and peer review (varies) | Firm licensed in the state | Compliance with professional standards as a condition of the firm permit; peer review enrollment and reporting. Legally required by state; content varies. Verify per state. | Mandatory |
| PCAOB QC 1000 PCAOB QC 1000, A Firm's System of Quality Control, effective Dec 15, 2025 | Firm registered with the PCAOB and auditing issuers or broker-dealers | A parallel quality control system with annual evaluation and, for firms auditing more than 100 issuers, an external quality control function; Form QC reporting. Legally required for PCAOB-registered firms. Verify effective date and reporting deadlines. | Mandatory |
Required sections
- Firm's risk assessment process: quality objectives, quality risks, and responses, documented and updated (component 1)
- Governance and leadership: culture, responsibilities, the individual with ultimate responsibility and the individual with operational responsibility (component 2)
- Relevant ethical requirements: independence policies, confirmation process, consultation (component 3)
- Acceptance and continuance of client relationships and engagements (component 4)
- Engagement performance: direction, supervision, review, consultation, differences of opinion, engagement quality reviews, documentation assembly and retention (component 5)
- Resources: human resources including competence, evaluation and compensation; technological resources; intellectual resources such as methodologies (component 6)
- Information and communication: internal communication of policies to personnel, external communication, information system (component 7)
- Monitoring and remediation process: monitoring activities, evaluation of findings, root cause analysis, remediation, communication of results (component 8)
- Network requirements where applicable (single source: firms in networks)
- Annual evaluation of the system by the individual with ultimate responsibility: date, conclusion, basis
- Documentation policy: what is documented, retention period, and how the system's operation is evidenced
- Responses required by the standard itself, including the confirmation of independence and the complaints and allegations procedure
What the examiner asks for
What changed
Change log.
Frameworks
Where this document is required.
Who looks at it
Where this document gets checked.
No one certifies a document like this on its own. It is read during the audits and inspections below, and by the agency behind each rule.
| Where it is looked at | Who looks at it |
|---|---|
| AICPA SQMS No.1 | Peer reviewers under the AICPA Peer Review Program (a qualified CPA firm and team captain approved by the program), administered by state CPA societies or the National Peer Review Committee. State boards of accountancy generally require enrollment in peer review as a condition of licensure |
Who helps write it
Consultants.
Firms that name these standards in their own material.
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Where it lives
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From the publisher
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Questions
What people ask.
We only do compilations and preparations. Does SQMS 1 apply?
SQMS 1 applies to firms performing engagements under the SASs, SSARSs and SSAEs. Compilation and preparation engagements fall under SSARS, so yes, though a firm that does only those engagements can scale the system heavily. Verify against the standard's applicability paragraph and your state board's peer review rule.
Is there a required manual format?
No. The standard requires documentation sufficient to support a consistent understanding and operation of the system and to evidence the annual evaluation. The AICPA practice aid provides a structure most small firms adopt.
What is the biggest change from SQCS 8?
The risk assessment process. Instead of adopting a set of policies, the firm sets quality objectives, identifies its own quality risks, and designs responses, then documents all three. Peer reviewers now test that chain.
Who has to sign the annual evaluation?
The individual assigned ultimate responsibility and accountability for the system, typically the managing partner. The evaluation states a conclusion as of a date and records the basis.
Who owns this site?
AllyMatter, a policy management tool that may appear in listings on this page. It is labeled every time, excluded from picks, and receives nothing from the matching form unless you name it.
Sources
AICPA Statement on Quality Management Standards No. 1AICPA Quality Management Standards executive summaries and at-a-glanceAICPA quality management practice aidJournal of Accountancy on the Dec 15, 2025 deadline resourcesThe CPA Journal, Implementing the AICPA's New Quality Management Standards