AT-8602 (CPA REVIEW SCHOOL OF THE PHILIPPINES Manite ‘AUDITING THEORY | = nei 5 AND REVIEWS OF + PSQC1 QUALITY CONTROL FOR FIRMS THAT PERFORM AUDITS HISTORICAL FINANCIAL INFORMATION, AND OTHER ASSURANCE AND + P5A220 QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS * PSA2I0 AGREEING THE TERMS OF AUDIT ENGAGEMENTS Psgca 1 TRRIM sal estabiish System af Quality Control to provide R wth reasonable assurance ft: 3 Tn fim and its persone! comply with profesionl standards and fegultory and legal requirements; and ‘6. Reports issued bythe frm or engagement partners are appropriate inthe cheumstances. 2. The fim shall establish and maintain a system of quality contol that inches poles and recedes that address each o the folowing ELEMENTS: Leadership responsibilty for quay within the fr Relevant ethical requirements ‘Acneptance and continuance of client relationships and specific engagements Human resources Performance page Maitoring | 3. The fm shall document its polices and procedures and cormunictethem tothe fms PSA 220| 1. LEADERSHIP RESPONSIBILITIES FOR QUALITY ON AUDITS * The engagement partner shail take responsibilty for the overall quality on each aucit to which that partner is assigned, 2. RELEVANT ETHICAL REQUIREMENTS + Throughout the audit engagement, the engagement partner shall remain alert, through bservation and making inquines’ as necessary, for evidence of noncomplance with ‘elevant ethical requirements by members ofthe engagement team. ‘+ The engagement partner shall form a condusion on noncompliance with independence ‘equirements that apply to the audit engagement. 3. ACCEPTANCE AND CONTINUANCE OF CLIENT RELATIONSHIPS ‘AND AUDIT ENGAGEMENTS ‘The engagement partner shall be satisfied that appropriate procedures regarding the ‘acceptance and continuance of dent relationships and auct engagements have been followed, and shal determine thet conclusions reached in tis regard are appropriate. 4, HUMAN RESOURCES ~ ASSIGNMENT OF ENGAGEMENT TEAMS ‘+ The engagement partner shall be satisfied that the engagement team, and any aucitor’s experts who are not part of the engagement team, collectively have the epronrate competence and capabilities to: 8) Perform the audit engagement in accordance wat professional standards and applicable gal ‘2nd regulatory requirements and Page 10 Page |CR AA 1) Enable an auctor’ report that i appropiate inthe cumstances to be Sued. 5. ENGAGEMENT PERFORMANCE The engagement partner shal take responsi for: 2) The direction, supervision and performance of the aust engagement in compliance with professonal standards and applicable Iegat and regulatory requirements and the auditor's ‘report being appropiate inthe creuetances. 1b) Reviews being performed in accordance with the irs’ review policies and procedures. (©) The engagement team undertaling appropriate consultation on dificult or contentious mates. Engagement Quality Control Review For auaits of nancial statements of listed entities, and those other audit engagements if any, for which the frm has determined that an engagement quality control review is required, the engagement partner shal: + Determine tat an engagement quality contol reviewer has been appointed; + Discuss significant matters ansing during the aust engagement, including those Kentfed during ‘the engagement quality contol reve, withthe engagement quality control reviewer; and ‘+ NOT date the auditor’ report until the completion ofthe engagement quality control rei. 6. MONITORING ‘+The engagement partner shall consier the results of the firm’s monitoring process evidenced in the latest informatio: Grculted by the firm and, if applicable, other network firms and whether deficiencies noted in that information may affect the audit engagement, DOCUMENTATION ‘The auditor shal include in the audit documentation: 2) Issues identified with respect to complance with relevant ethical requirements and how they were 1) Conciusions on compliance with independence requirements that apply tothe aut engagement, and any relevant secussons with the frm that support these conclusions. ©) Conctusions reacted regarding the acceptance and continuance of cient relationships and audit ‘engagements. {) The nature and scope of, and concsion resuting from, consutations undertaken during the course ‘ofthe aut engagement. PSA 210 1. The objective ofthe auditors to acceptor continue an aucit engagement only when the basts ‘upon which its to be peronned has been agresd through: 2). Establishing whether the recondition for an at are present; and ) Contning that Sere is common understanding between the audtor and management and where appropriate, thse charged with govemiance of te tems ofthe aut engagement. Preconditions for an audit ~ 2) The use by management cf an acceptable financial reporting framework inthe preparation ofthe firancal statements; and 1) The agreement of maragement ad, where approprise, tose charged with governance to the premise on which an audi cendvtec. 2. Audit Engagement Letters ‘The agreed terms ofthe audit engagernent shal be recorded in an aud engagement letter (oF other sultable form of written agreement and shal include: 2) The objecive and scope of the adi ofthe financial statements; b) The responses ofthe autor ©) The responses of managerest; Poge 20f8 Pages(SPAR -MANLA arse 4) ‘dentiication of the applicable financial reporting framework for the preparation ofthe Financial statements; and €) Reference fo the expected form and content of any repots to be issued by the audtor and 2 Statement that there may be rcurstances in which a report may differ from i expected form and content. 3. Acceptance of a Change in Engagement | An autitor who, before the completion of the engegement, is requested to change the ‘engagement to’ one which provides a lower level of assurance, should consider the appropriateness of doing s0, 2. ‘Arrequest from the dient forthe auditor to change the engagement may result from: ‘A, Achange in circumstances affecting the need forthe service; Amisvaderstanding as to the nature of an autor related service orginally requested or (C Arestrction on the scope ofthe engagement, whether Imposed ty management or caused by 3. A change would not be considered reasonable if it appeared that the change relates to Information that is incorect, incomplete or otherwise unsatisfactory. 4. Before agreeing to change an audit engagement to a related service, an auditor would ‘also consider any legal or contractual implications ofthe change. 5. If the auditor concludes that there is reasonabie justification to change the engagement ‘and if the audit work performed complies with the PSAS applicable to the changed engagement, the report issued would be that appropriate for the revised terms of ‘engagement. ‘6. Inorder to avoid confusing the reader, the report would mat include reference to: 1. The orignal engagement; or ‘Any procedures tat may have been performad Inthe orignal engagement, except where the ‘engagement is changed to undertake agreed-upon procedures. 7. Where the terms of the engagement are changed, the auditor and the dient should agree. (on the new terms. ‘8 The auctor should not agree toa change of engagement where there is no reasonable Justification for doing so, ‘9 Ifthe aucitor is unable to apree toa change of the engagement and is mot permitted to Continue the orginal engagement, the auditor should withdraw and consider whether there is any obligation, contractual or otherwise, to report to other partis, such as the ‘board of directors or shareholders, the dreumstances necessitating the withdrawal, MULTIPLE CHOICE QUESTIONS. 1. ACPA firm is reasonably assured of meeting its responsbilty to provide services that ‘conform with professional standards by ‘A. Maintaining independence of mind and in appearance in its engagements. BB Joining professional associations that enforce ethical conduc. . Having an appropriate system of quality contro. Adhering to Philippine Standards on Auditing (PSAs). 2. ACPA firm must establish and implement quality control polices end procedures because these standards ‘A. Give reasonable assurance thatthe fn as a whole wil conform with auditing and other ‘applicable professional standards. 8. Include formal fling of records of such poles and procedures with the PICA. C. Provide assurance that cients maintain quality reporting systems. D. Are necessary to meet the requirements ofthe Financial Reporting Standards Council (FR), Page 308 PagesSevReMaya 3. Quality control fora CPA firm applies to A. Assurance services ony. B. Auditing and consuiting services. ©. Auditing and tax services. ©. All engagements feling under the AASC's engagement standards, 4. Which ofthe following are elements of a CPA firm's quality control that should be considered in esabishng Is quality control policies and procedures? Ethical Human Engegement ‘Requirements Resourees Performance A Yes Yes No. a Yes Yes Yes c No Yes Yes D. Yes No Yes ‘5. The nature and extent of @ CPA firm's quality control polices and procedures depend on “The Nature ThecPa _ofthe CPA Cost-Benefit Fis Size Fim’s Practice Considerations A Yes Yes No, a No Yes Yes c Yes No Yes . Yes Yes Yes {6 Which ofthe folloning are elements ofa CPA firm's quality entra that should be considered in establishing its quality control poices and procedures? ‘A. Considering cient’ business risk and audit risk. {8 Managing human resources. © Complying with laws and regulations. D. Complying with auditing and other applicable professional standerds. 7. ACPA establishes quality control policies and procedures for deciding whether to accept a Tew client or continue to perform services toa current dient. One purpose for establishing ‘such policies and procedures is ‘A. To enable the autor to attest tothe reiabilty of the client. B, To satisty the CPA firm's duty to the public concerning the acceptance of new dient. C. To provide reasonable assurance thatthe integrity of the dient is considered, D. To anticipate before performing any field work whether an unmodified opinion can be expressed. {8 In connection withthe element of human resources, a CPA firm's system of quality controt should ordinary provide tat all personnel ‘A. Particpate in professional development activities that enable them to fulfil responsibilities assigned, 8. Possess judgment, motivation, and adequate experience. C Seek assistance from persons having appropriate levels of knowledge, judgment, and ‘uthorty. 1. Demonstrate compliance with independence polices. {In pursuing 2 CPA firm's quality control objectives, @ CPA fim may maintain records {ncating which partners or staff of the CPA firm were previously employed by the CPA fin’ cients. Which quality control element is this procedure most likely to satisfy? ‘A. Supendsion. Professional relationship, CC. Experience requirements. s . Relevant ethical requirements, 10. Quality consol policies and procedures should be relevant, adequate, effective, and Comal with. Tis sotements most cosy assocaed wih the quay conoo element ‘A. Advancement. 9 Page 4of Pagesa. 14 15, 16, v7. B. Review CC Relevant ethical requirements. 1. Monitoring. ‘The requirement to promote a culture of quality is most dosely associated with which ofthe following qualty contol elements? ‘A. Engagement performance. 1B Relevant ethical requirements. C. Leadership responsibilty for qualty within the fm. D. Monitoring In order to achieve effective quality contra, fm of Independent aucitors should establish Policies and procedures for ‘A. Determining the minimum procedures necessary for unaudited finance! statements, B, Setting the scope ofthe avd. Hl C. Deciding whether to accept or continue a cent. D. Setting the scope of internal control study and evaluation. In pusung its quality contro objective wth respect to asigning person to engagements, 2. CPA firm may use policies and procedures such as ‘A. Rotating employees from assignment to assignment on a random basis to aid in the Sat vonna cho 'B. Requiring timely Identitcation of the staffing requirements of specfic engagements so Sater aisted perl con wate uti 6. Aloweg sof to S800 We asserts of tr che 1 promt baer clk > relation ‘Assigning a numberof employees to each engagement in excess ofthe number required ‘0 25 not to overburden the staff and interfere with the quality of the audtt work performed. v In Its quality control objectives with respect to acceptance of a cent, a CPA frm Is not ly to |A. Moke inquires of the proposed client's legal counsel BB Review finance statements of proposed clent CC. Make inquines of previous auditors. . Review the personnel practoes ofthe proposed dent. i “The folowing are essential components of quay conbol exert 1 Plies and procedures that ena Vit montorng actives are effectively apd. & ore personne are actively engaged in morkting jes. CC. Pblicies and procedures to ensure that the work performed by frm personnel mest apes ea anda, . Pplides to ensure that personnel maintain thelr independence when performing assurance services. ‘A requirement that working papers be reviewed by the senior auditor, and any deficencies be discussed with the preparer isan example of a quality control procedure inthe area of ‘A. Engagement performance. 8. Monitexing. C. Human resources, ©. Upadership responstlty for quality wthin the fm. ‘The engagement partner should take responsiblity for the direction, supervision, and performance of the audit engagement in compliance with professional standards and regulatory and legal requirements, and for the auditors report that is tssved to be ‘appropriate in the croumstances. Supervision Includes the following, except [AL Tracking the progress ofthe aucit engagement. BL Addressing significant issues arising during the audit engagement, considering their signficance, and macifying the planned approach appropriately. C Informing the members ofthe engagement team of their responses. Page Sof PageseR i ©. Identifying matters for consultation or consideration by more experienced engagement ‘team members during the aucit engagement 18. A process comprising an ongoing consideration and evaluation ofthe firm's system of qualty ‘control incluing a peradic inspection of a selection of completed engagements designed {0 provide the firm with reasonable assurance that its system of quality control is operating effectively refers to what element of quality contol? A. Inwemat contro [8 Acceptance and continuance of cient relationships and specific engagements. © Monitoring. 1D. Human resources 19, Which element ofa system of quaity conta s addressed by the establishment of polices {and procedures designed to provide the fem wth reasonable assurance thet ithas suicient ‘personnel with the competence, capaitis, and coramtment ethical principles? A. Monitoring Leadership reponsiities for quality within the fm Human rescues . Engagement performance 20, The least important elementin the evaluation of CPA fim’ system of quality contr would ‘concem its polices and grooadures with respect to |A. Assigning personne! to engagement B. Employment hiring) CC. Confientiaty of auat engegements, D. Determination of aud fees. 24, Foraustsct nanciel statements o listed entities, the engagement partner should not issue the aucitors report untl the completion of the ‘A. Engagement Qualty Control Review! 1B, Management Review C. Engagement Team Review ©. Engagement Partner Review 22, Who srouid take responsiblity forthe everli quality on each aud engagement? AL Shoagemanc quay co,e0l reviewer 8. Exgegement partner Engagement fear D. CPA 23. The enoagement pertner shoud take responsibity for the direction, supenision, and Derformarne of the audit engagement in compliance with professional standerds and regulatory and leyal requtements, 2nd for the audios report that is issued to be ‘appropriate in the crcumsances. Supervision includes the folowing, except ‘A. Trackng the prosiess of me aut engagement. B. Addressing stonficant ‘ssues arising dunng the audi engagement, considering their significance, and mocking the planned aoproach epprouriately. G Infermicn the memders of he engagernent tear of their responsiblites. 1. Identtying mate's for ecrsitatcn or eonsieretion by move experienced engagement team meinoers during the audkc engagement. 24, PSA 220 requires the engagement partner to consider whether members ofthe engagement team have compen with the ethical requieints relating to aucic engagements. The Code (Of Ethics establishes tne fundamental principles of professional ethics, which indude Integrity Ih Objectivity IL Professions! competence and due care 1V, Confidentiaty Vz Professional behavior ‘A. 1,15,1V, and V only Page Got Tages1, 1, TV, and V only 1,11, 1, and V only 8 © 1m D. 1,1, andv 25. For audits of financial statements of ste ene, the engagement partir should ‘A. Determine that an engagement qualty control reviewer has been appointed, 3. Discuss signicant matters arsng during the audit engagement, incudng those ‘enefied during the engagement quality convo review, withthe engagement quality contrl reviewer. Not ssue the auditors report url the competion ofthe engagement quaty conto en. D, Allofthe above 26. The implementation of quality control procedures that are applicable to the indlvidual auc enoagarent ste esporsiiy of he A. CPA firm 7 27. Typical, an edeeal aude frst gets sopensery experience a what level of extort? 8. Supenvsor. © Manager. D. Partner. 28, The audit work performed by each assistant should be reviewed to determine whether f was adequately performed and to evaluate whether the I ‘A. Auditors system of quality control has been maintained at 2 high level BB Results are consistent with the conclusions to be presented inthe auditor's report. Audit procedures performed are epproved inthe professional standards. 1D. Aucithas been performed by persons having adequate technica trang and proficiency as audtors. 29, Thefolowing statements relate tothe engagement parte responsy to conduct ely ‘eviews ofthe auc documentation tobe stisfed that sufficient te evidence has been obtained to support the conclusions reached and forthe auditors report tobe issued. Which sflse? | ‘A. The engagement partne’s review of the audit documentation allows significant matters fo be resolved on a timely basis to his/her satsfction before the auditors report is issued. 8. The engagement partner should review all audit documentation. (C. The engagement partner should document the extent and timing ofthe reviews. 1. The reviews cover crical areas of judgment, especialy those relating to diffcut or contentious matters identified during the course ofthe engagement, significant rss, and other areas the engagement partner considers important. A Yes Yes No 5 No No No G Yes No Yes D. Yes Yes Yes os 31, A firm's system of quality control should ordinarily provide for the maintenance of AL A file of minutes of staff meetings. 8. Updated personnel files. I Page 7 of 6 PagesSeagemaeon, ar a gamma Quality coro, 1D. Documentation to demonstrate compliance with regulatory requirements. 32, Which of the folowing statements would feast lily appear in an auditor's engagement, letter? ‘A, Fees for our services are based cn our requler per diem rates, plus travel and other out- ‘oFpocket expenses. B. Management Is responsible for making all financial records and related information avellabie to us. Our engagements subject to the risk th mater eres or oud, they st wil nat detected. . After performing our preliminary analytical procedures, we will discuss with you the ‘other procedures we consider necessary to complete the engagement. 33, The engagement letter documents and confirms the A Bf co PB ‘Auditor's acceptance ofthe appointment Yes Yes Yes Yes ‘Objective and scope ofthe auclt Yes No Yes Yes Extent of the auditor's responsibities tothe dlent No Yes No Yes Form of any reports Yes No No Yes 34. The auditor may aocept or continue an audit engagement only when the basis upon which itis tr be performed has been agreed, ircugh |. Establishing whether the preconditions fer an audt are present. U. Confirming that there is a common understanding between the auditor and ‘management and, where appropriate, those charged with governance of the terms of the audit engagement. A Tonly B Wenly © Beth} and a . Nether I nor 11 35. An auditor who, before the completion of the engagement, is requested to change the ‘engagement to one wich provides a lower fevel of assurance, should ‘A. Withdraw ard consider whether there is any obligation to report to other parties the roumstances necessitating the withdrava. Issue a report that incluses reference to the original engagement and any procedures that may have been performed inthe original engagement. C Not agree io a change of engagament where there Is no reasonable justification for doing so. D. Consider the change reascrable If it relates to information that is incorrect, incomplete Or otherwise unsatisfactory. aD Page Bor Pages