Trust, society, and QC 1000

Steven Pinker writes in How the Mind Works (1997) that "the expansion of the human brain was driven by a cognitive arms race, fueled by the emotions needed to regulate reciprocal altruism."

In other words, we are intelligent because we need to know who is trustworthy enough to work with. We become even more intelligent in order to cheat. And we become more intelligent still to detect the cheaters. And so on, and so on.

If that is accurate, in a strange sense auditors are the ultimate product of human evolution. The profession exists to build trust, to tell people what's true and what isn't, to enable reciprocal exchange while minimizing the fear of cheating. And indeed, in The Honest Truth about Dishonesty (2012), Dan Ariely finds that accountants are among the most honest of professionals.

But every system contains the seeds of its own corruption, as Albert Hirschman observes in Exit, Voice, and Loyalty (1970). PCAOB Board Member Kara Stein recently observed in her comments about audit firm metrics (2024) that auditing is a "'credence good,' that is, its operation and qualities are hard to observe." As Juvenal wrote two thousand years ago, "Who will watch the watchmen?"

So we come to the PCAOB's QC 1000 standard on an audit firm's system of quality control. This is not a new concept, existing already in both U.S. and international professional standards (AICPA and IFAC, respectively). But QC 1000 is more prescriptive. It requires dozens of quality objectives and specified quality responses, and imposes new levels of accountability on firm leadership. I've spoken to audit partners from firms of all sizes who welcome more accountability at the leadership level. And the best leadership teams will embrace transparency and accountability. Of course, if Steven Pinker is right and human intelligence is really a cognitive arms race between cheating and detection, then some leaders may be less than transparent about how good their system of quality control really is... and the arms race will continue.

(For more on the cognitive arms race and reciprocal altruism, see Trivers, Robert, The Evolution of Reciprocal Altruism, published in The Quarterly Review of Biology, March 1971.)