Understanding Our Commitment to Quality: Implementing the New System of Quality Management
By Chris Saunders, Audit Director, Sherbert CPA, PC | csaunders@sherbertcpa.com
As your trusted partners in financial reporting and assurance, we are committed to upholding the highest standards of quality in every service we provide. With the accounting profession evolving rapidly, we are excited to share details about our responsibilities under the new Statement on Quality Management Standards (SQMS) No. 1, *A Firm’s System of Quality Management*, issued by the American Institute of Certified Public Accountants (AICPA). This standard represents a significant step forward in ensuring the reliability and integrity of our audit services. This article explains what SQMS No. 1 entails, our firm’s responsibilities, how we are implementing it, and what it means for you as our valued client.
What is SQMS No. 1?
SQMS No. 1 introduces a proactive, risk-based approach to quality management for CPA firms, replacing the previous rules-based model under Statement on Quality Control Standards (SQCS) No. 8. This new standard requires firms to design, implement, and operate a system of quality management (SQM) that provides reasonable assurance that we and our personnel fulfill our responsibilities in accordance with professional standards, applicable legal and regulatory requirements, and that the reports we issue are appropriate under the circumstances.
Unlike the previous standards, SQMS No. 1 is principles-based, scalable, and tailored to the unique nature and circumstances of each firm. SQMS No. 1 emphasizes identifying and mitigating quality risks proactively, promoting a culture of continuous improvement. The standard becomes effective for systems of quality management as of December 15, 2025. This applies to all our audit, review, compilation, and attestation engagements, ensuring high performance of the engagements and consistency.
Our Firm’s Responsibilities Under SQMS No. 1
As a public accounting firm, our primary responsibility is to establish and maintain an SQM that aligns with the requirements of SQMS No. 1. Firm leadership bears ultimate accountability for this system, including an annual evaluation to confirm the system achieves its objectives. We must promote a culture where quality is prioritized in strategic decisions, resource allocation, and daily operations.
The standard outlines eight interconnected components that form the foundation of our SQM:
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Component
|
Description |
| Risk Assessment Process | Establishing quality objectives, identifying and assessing risks that could hinder them, and designing responses to mitigate those risks. |
| Governance and Leadership | Ensuring leadership promotes a quality-focused culture and assigns qualified individuals to oversee the SQM. |
| Relevant Ethical Requirements | Aligning with the AICPA Code of Professional Conduct, emphasizing integrity, objectivity, and independence. |
| Acceptance and Continuance of Client Relationships | Evaluating clients based on factors like management integrity, industry risks, and our firm’s capabilities to perform the engagement. |
| Engagement Performance | Ensuring engagements are conducted with proper understanding, documentation, and, where needed, quality reviews for high-risk or complex audits. |
| Resources | Managing human, technological, intellectual, and financial resources to support quality, including training and tools. |
| Information and Communication | Facilitating the flow of information internally and externally to support the SQM’s operation. |
| Monitoring and Remediation | Regularly inspecting the system, identifying deficiencies, and remediating them through training or process adjustments.
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These components operate in an integrated, iterative manner, allowing us to adapt to changes in our practice, regulations, or client needs.
How We’re Implementing SQMS No. 1
We’ve been proactively preparing for SQMS No. 1 well ahead of the December 15, 2025, effective date. Our implementation follows a structured, risk-based process to ensure a seamless transition:
- Establishing Quality Objectives: We have defined clear goals, such as only accepting engagements we can perform competently and in compliance with standards.
- Identifying and Assessing Risks: Using professional judgment, we’re identifying potential risks or ethical conflicts and evaluating their likelihood and impact.
- Designing and Implementing Responses: For identified risks, we’re developing tailored policies, such as enhanced review procedures for high-risk engagements and targeted training for our staff.
- Monitoring and Remediation: We will conduct annual internal inspections and use peer review findings to further our culture of continuous improvement. We are happy to announce that we have received a peer review rating of pass with no deficiencies since our firm’s founding, which is a great achievement and a testament to leadership’s focus on quality.
- Documentation: Our entire SQM will be formally documented to promote understanding and accountability across the firm.
While SQMS No. 1 requires more analysis than the previous rules-based approach, we’re leveraging AICPA resources, including practice aids and checklists, to guide our efforts. As always, our leadership team is fully engaged, fostering a quality-driven culture that continues to reward excellence.
Benefits to You, Our Client
Although we are required to Implement SQMS No. 1, we are treating this as another opportunity to enhance the value we deliver to you on an ongoing basis. This risk-based system leads to higher-quality audits, greater consistency, and stronger compliance with standards, ultimately building even more trust in your financial reporting. You will benefit from our proactive risk management, which reduces the likelihood of issues and ensures we are equipped to handle complex or evolving business challenges. This strengthens our partnership, providing you with even greater confidence in the services we provide.
Looking Ahead
As we approach the December 15, 2025 implementation deadline, rest assured that we are dedicated to meeting and exceeding the requirements of SQMS No. 1. If you have questions about how this impacts your engagements or our processes, please reach out to Chris Saunders at csaunders@sherbertcpa.com or Bill Sherbert at bsherbert@sherbertcpa.com. We’re here to support your continued success and maintain the transparency you expect from us.