Join the waitlist
Glossary/Quality and peer review

SQMS 1

SQMS No. 1 is the AICPA standard requiring a CPA firm to design, implement and operate a risk-based system of quality management for its accounting and auditing practice. It replaced SQCS No. 8.

CORAA TeamUpdated November 5, 2026

Definition

Statement on Quality Management Standards No. 1, A Firm's System of Quality Management, requires a firm to design, implement and operate a system of quality management for engagements it performs in its accounting and auditing practice. It replaces the older quality control standard with a risk-based approach, and it is paired with SQMS No. 2 on engagement quality reviews and SAS 146, which aligns the auditing standards with it.

Why it matters in an audit or review

Firms were required to have the system designed and implemented by December 15, 2025, and to complete the first evaluation within one year after that date. SQMS No. 2 applies to audits or reviews of financial statements for periods beginning on or after December 15, 2025, and SAS 146 applies to audits for periods beginning on or after that date. SSARS No. 26 aligns review and compilation engagements with the system. Peer reviewers examine the firm's quality management documentation, so a firm needs current documentation of its quality objectives, quality risks and responses.

Example

A 12-person firm that audits employee benefit plans identifies a quality risk: partners accept plan audits outside their experience. The firm adds a response requiring a second partner to review the acceptance decision, tracks completion on a form, and tests the response at year end during its monitoring. The annual evaluation records the result.

Common mistakes

Copying a template without tailoring the risks to the firm's own engagements and staff.

FAQ

Does SQMS 1 apply to a sole practitioner?

Yes. Any firm performing engagements in the scope of the standard needs a system. A small firm can have a scaled system, but it still has to meet the requirements and document it.

Sources

  • AICPA, Statement on Quality Management Standards No. 1, A Firm's System of Quality Management (QM Section 10)
  • AICPA, SQMS No. 2, Engagement Quality Reviews (QM Section 20)
  • AICPA, SAS No. 146, Quality Management for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards (effective for audits for periods beginning on or after December 15, 2025)
  • AICPA, SSARS No. 26, Quality Management for an Engagement Conducted in Accordance With Statements on Standards for Accounting and Review Services
  • AICPA, announcement of the new quality management standards, effective December 15, 2025: https://www.aicpa-cima.com/news/article/aicpa-releases-new-quality-management-standards

Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error

Standards

SQMS No. 1SQMS No. 2SAS 146

Related terms

  • System of quality management
    A system of quality management is a firm's set of policies and procedures built around quality objectives, assessed quality risks and responses. SQMS No. 1 organizes it into eight components.
  • Monitoring and remediation
    Monitoring and remediation is the SQMS No. 1 component under which a firm checks whether its quality responses work, finds deficiencies, determines root causes and fixes them.
  • Engagement quality review
    An engagement quality review is an objective evaluation, performed by a qualified person who is not on the engagement team, of significant judgments made and conclusions reached before the report is released.
  • Peer review
    Peer review is an independent evaluation of a CPA firm's accounting and auditing practice by another qualified CPA. Firms that audit generally need one every three years under the AICPA program.

Go deeper

All glossary terms →

For US CPA firms

Join the CORAA waitlist

CORAA AI drafts audit working papers from your client’s QuickBooks books and does the first pass: lead schedules, tie-out, memos, draft notes and letters. CORAA Network reviewers clear every finding. Your firm reviews and signs.

  • First audit free, so you can judge the quality on a real file
  • Flat fee by entity size; messy books included
  • We work only with CPA firms, never their clients
See how it works →

* required