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Glossary/Quality and peer review

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.

CORAA TeamUpdated November 5, 2026

Definition

A system of quality management (SQM) is the firm's structure for achieving quality in its engagements. SQMS No. 1 has eight components: the risk assessment process, governance and leadership, relevant ethical requirements, acceptance and continuance of client relationships and engagements, engagement performance, resources, information and communication, and monitoring and remediation.

Why it matters in an audit or review

The risk assessment process is the core. The firm establishes quality objectives (the standard specifies many), identifies and assesses quality risks that could prevent achieving them, and designs responses. The firm assigns ultimate responsibility and accountability for the system to the managing partner or equivalent, and an individual operational responsibility. Leadership evaluates the system at least annually and concludes whether it gives reasonable assurance that the objectives are met.

Example

A firm sets a quality objective that engagement teams have enough time and competent staff. It identifies a quality risk: busy-season overload causes partners to sign off with incomplete review. Its response is a capacity check before accepting new audits in January and a rule that no report is released before review notes clear. Monitoring later tests ten files for the second response (illustrative).

Common mistakes

Writing objectives and risks once, then never updating them when the firm's clients or staffing change.

Sources

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. 1

Related terms

  • 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.
  • 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 →

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