What Is QC Section 10? The 6 Elements & New QM Standard
Understand the foundational AICPA standard that governs a CPA firm's system of quality control and its transition to a modern, risk-based approach.
QC Section 10 is a standard from the American Institute of Certified Public Accountants (AICPA) that governs a CPA firm’s quality control for its accounting and auditing practice. Its purpose is to provide reasonable assurance that the firm and its personnel follow professional standards and legal obligations. This framework ensures that the reports a firm issues are appropriate for the circumstances. The standard establishes a system that firms must design, implement, and maintain.
The Six Elements of a Quality Control System
Leadership Responsibilities for Quality
The foundation of a quality control system rests with the firm’s leadership. This element requires that management assumes responsibility for the system and promotes an internal culture where quality is a priority, often called the “tone at the top.” Through consistent communication and actions, leadership emphasizes that performing high-quality work is the firm’s primary objective. This involves dedicating sufficient resources, like experienced personnel and technology, to support the system.
Relevant Ethical Requirements
A firm must establish policies to ensure it and its personnel comply with all relevant ethical requirements. This centers on maintaining independence, integrity, and objectivity. Policies must identify and evaluate potential threats to independence, such as financial interests in a client or close personal relationships. The system should also include procedures for communicating these requirements to all staff and for tracking compliance.
Acceptance and Continuance of Client Relationships
Firms must have a formal process for evaluating whether to accept a new client or continue serving an existing one. This involves assessing the integrity of the client’s management and determining if the firm has the necessary competence and resources to perform the engagement. For example, a firm considers the client’s reputation, financial stability, and the overall risk associated with the engagement. This process minimizes the risk of a firm being associated with clients that could compromise its professional standing.
Human Resources
This element addresses policies for managing personnel to ensure they have the competence to perform their duties. It covers hiring, professional development, compensation, and advancement. Firms must implement criteria for hiring individuals with appropriate character and skills and provide ongoing training to keep staff current on professional standards. The assignment of engagement teams is also part of this element, ensuring personnel have the appropriate technical training and proficiency.
Engagement Performance
To ensure quality, firms must establish policies for performing engagements, including requirements for planning, supervision, and review of all work. An engagement plan must be developed to meet professional and regulatory requirements. The work of less experienced staff must be reviewed by more senior team members to ensure it meets the firm’s standards. This element also covers the need for consultation on complex issues and outlines how differences of opinion are resolved.
Monitoring
A firm’s quality control system must be subject to ongoing evaluation to provide reasonable assurance that its policies are suitably designed and operating effectively. The monitoring process includes selecting completed engagements for inspection to assess compliance with professional standards and the firm’s own procedures. This internal inspection helps identify deficiencies so that corrective actions can be taken.
Documentation and Monitoring Requirements
A firm must document the policies and procedures that constitute its system of quality control. The form and extent of this documentation can vary based on factors like the firm’s size and the nature of its practice. The documentation should be sufficiently detailed to communicate the policies to all personnel and to allow those performing monitoring procedures to assess the firm’s compliance.
The monitoring process involves specific actions to oversee the quality control system. A component of this process is the periodic inspection of a selection of completed engagements. For firms that are members of the AICPA, this monitoring is supplemented by the peer review program. In a peer review, an independent, qualified CPA firm evaluates whether the firm’s system of quality control is appropriately designed and whether the firm is complying with it.
Transition to the New Quality Management Standard
The landscape of quality control is changing, as QC Section 10 is being superseded by a new set of standards, primarily the Statement on Quality Management Standards (SQMS) No. 1. Firms are required to have their new systems of quality management designed and implemented for periods beginning on or after December 15, 2025. This marks a shift from a “system of quality control” to a more proactive and risk-based “system of quality management.”
The new standard moves away from the more checklist-oriented approach of the six elements and introduces a framework based on eight integrated components. This new model requires firms to proactively identify and assess quality risks that could prevent them from performing quality engagements. Based on this risk assessment, the firm must design and implement responses to mitigate those identified risks. This change emphasizes a more tailored and scalable approach.