S*FloorcMFFIB.sing ReSA 813 Cor R. Pape and S Loyala Sta ‘Sampatoc. Manis The ReviewSchool of Accountancy £2 725.0007 17343680 / OHO) 436-1320 1 Preuaresew@hcod com ‘AUDITING THEORY IMI FOY - MBN FCT AT-05: QUALITY CONTROLS REQUIRED READINGS © Chapter 5, Auditing and Assurance Principles, 2017 Edition 2 philippine Standard on Quality Control No. 1 (Redrafted), Quality Control for Firms that Perform Audits and eviews of Historical Financial Information, and Other Assurance and Related Services Engagements = PSA 220 (Redrafted): Quality Control for Audits of Financial Statements, +_IFAC's Statements of Membership Obligations (SMOs) 1-”_ 1, The fundamental objectives of the SMOs include ‘A. to provide clear benchmarks to current ard potential IFAC member bodies. 8. to assist IFAC member bodies in encuring high-quality performance by professional accountants. C. to support the adoption and implementation of international standards and other pronouncements issued by the International Auditing and Assurance Standards Board {IAASB), International Accounting Education Standards Board (IAESB), International Ethics Standards Board for Accountants (iE3BA), International Public Sector Accounting Standards Board (IPSASB), and Iriternaticna: Accounting Standards Board (IASB). D. to support the establishment of quality assurance and investigation and disciplinary systems, E. All of these. 2. This SMO sets out the requirements of an IFAC member body with respect to quality assurance review systems for its members who perform audits, review, other assurance, and related services engagements of financial statements. ‘A. SMO 1 ~ Quality Assurance B. SMO 2 - International Education Standards for Professional Accountants and Other Pronouncements Issued by the [AESB C. SMO 4 - IESBA Code of Ethics for Professional Accountants D. SMO 6 - Investigation ana Discipline 3. With respect to SMO 1 - Quality Assurance and without prejudice to the existence of more complex national frameworks, IFAC member bodies may have: ‘A. direct responsibility for the area covered B. no responsibility for the area covered. C__ shared responsibility with government, regulators, or other appointed authorities. D. Allof these. 4, The policies and procedures adopted by a firm designed to provide it with reasonable assurance regarding compliance with professional standards and regulatory and legal requirements, and appropriateness of reports issued by the firm: A. Internal controls C. Code of Ethics B. Monitoring D. Quality controls 5. PSQC No. 1 applies to , while PSA 220 applies to _ ‘A. Assurance engagements, audits C. Audits, reviews B. Audits, assurance engagements D. Assurance, reporting 6. Which of the following are elements of quality control according to PSQC 1? ‘A. Leadership responsibilities C. Monitoring B. Relevant ethical requirements D. All of the above 7. Actions and messages that encourage a culture of quality are communicated through: ‘A.__ Training seminars, meetings, formal or informal dialogue, mission statements. 8. Newsletters and briefing memoranda, internal documentation and training materials. C._ Partner and staff appraisal procedures D. Allof these. 8. Ethical requirements to which the engagement team and engagement quality control reviewer are subject, which ordinarily comprise Parts A and B of the Code of Ethics, together with national requirements that are more restrictive ‘A. Fundamental principles C. Client screening cnteria B. Relevant ethical requirements D. Pre-conditions to an audit ReSA - The Review School of Accountancy ap Pave bots“ Review School of Accour Aecting aay: Quay Gras” AT-05 9. The firm should obtain written confirmation of cen:pliance with Its policies and procedures on independence from all firm personnel required to be independent by the Code of Ethics at least A. Monthly. B. Quarterly. C. Annually. D. Every 3 years. 10.By obtaining confirmation and taking appropriate action on information . indicating noncompliance, the firm demonstrates the importance that it attaches to independence and makes the issue current for, and visible to, its personnel. Written confirmation: ‘A. May be in paper format only. B. May be in electronic format only. C. May be in paper form or electronic form D. Is not required since oral confirmation will suffice per PSQC1. 11, With regard to the integrity of a client, matters that the firm considers include the following: ‘A. The identity and business reputation of the élient’s principal owners, key management, related parties and those charged with its governance. 8. The nature of the client's operations, including its business practices. C. Information concerning the attitude of the client's principal owners, key management. and those charged with its governance towards such matters as aggressive Interpretation of accounting standards and the internal control environment. D. All of the answers 12.A CPA, while performing an audit, strives to achieve independence in appearance in order to ‘A. Reduce risk and liability of the auditor 8. Comply with requirements of the various regulators C. To achieve independent in fact D. Maintain public confidence in the profession 13.A CPA establishes quality control policies and procedures for deciding whether to accept a new client or continue to perform services for a current client. The primary purpose for establishing such policies and procedures 1s, ‘A. To enable the auditor to attest to the integrity or reliability of a client B. To.comply with the quality control standards established by regulatory bodies C. To lessen the exposure to litigation resulting from failure to detect irregularities in client financial statements D. To minimize the likelihood of association with client whose management lacks integrity 14.4 firm has obtained information that would have caused it to decline an engagement had the information been available earlier. Actions aveilable to the auditor include the following, except: Reporting the information and its implications to the person(s) who appointed the CPA. Withdraw from the engagement Withdraw from both the engagement snd the client relationship. Continue the engagement, since the Code of Ethics requires started engagements to be finished regardless of subsequent developments and information. pomp 15.When a firm withdraws from an engagement, the firm may have reportorial responsibilities to the following: A B c 2 * Appropriate level of management Yes Yes Yes Yes + Those charged with governance Yes Yes No No © Regulatory authorities Yes No No Yes 16.Personnel issues that must be addressed hy the system of quality control include the following, except: Recruitment and performance evaluation Capabilities and competence Career development and promotion ‘Compensation and estimation of personnel needs All of the answers. mon@> 17. Which of the following methods are most likely te develop capabilities and competence? ‘A. Professional education. B. Continuing professional development, inciucing training, C. Work experience and coaching by more experienced staff. D. Self-study modules on professional accounting and auditing literature. E. All of the answers. ReSA 735-9607 / 734-3989 / (0910) 439-1320 Page 2 of §[ReSA: The Review School of Accountancy Nest sr Gas cess AT-05 18. Engagement supervision includes: Tracking the progress of the engagement. B Considering the capabilites and competence of individual members of client personnel. C. Addressing all issues arising during the engagement and modifying the planned ©. > approach appropriately. Identifying matters for consultation or consideration by less experienced engagement team members during the engagement. 19.A reviewers responsibilities shall include the following except: ‘A. The work has been performed in accordance with GAAP. B, Consultation with experts has been made for all phases of the engagement. ©. The work performed supports the conclusions reached and is appropriately documented; D. Whether the system of quality control is operating effectively and adequately. 20.In a certain audit engagement, several key members of the engagement team had differences of opinion regarding a certain matter. In this case. ‘A. The engagement partner shall issue a disclaimer of opinion due to a scope limitation. B. An increase in the audit fee will be requested due to the extension of the time required to complete the engagement. C. Documentation will be made regarding the unresolved matter, and the auditor will withdraw from the engagement altogether. D. The report shall not be issued until the matter is resolved. 21. This is a review that provides an objective evaluation of the significant judgments made by the engagement team and the conclusions reached in formulating the report. ‘A. Engagement quality control review. C. Peer review. B. Engagement judgment review procedures. _D. System of quality control. 22.An engagement quality control review is required to be performed: A. immediately after the re-assessmeni of control risk. B. for all audits of financial statements of listed entities C. for all types of audits, regardless of the subject matter of the engagement. ©. at engagement completion after the report Is issued. 23.A partner, other person in the firm, suitably qualified external person, or a team made up of such individuals, with sufficient and appropriate experience and authority to objectively evaluate, before the report is issued, the significant judgments the engagement team made and the conclusions they reached in formulating the report. ‘A. Engagement partner C. Personnel 8. Engagement quality control reviewer D Suitably qualified external person 24. An individual outside the firm with the capabilities and competence to act as an engagement partner, for example a partner of another firm, or an employee (with appropriate experience) of either a professional accountancy body whose members may perform audits and reviews of historical financial information, or other assurance or related services engagements, or of an organization that provides relevant quality control services. ‘A. Suitably qualified external person C. Engagement partner B. Partner D. Engagement quality control reviewer 25. What aspects are most important in determining the eligibility of engagement quality contro! reviewers? A. Technical qualifications and objectivity. C. Competence and independence. B. Integrity and objectivity. D. All of these. 26. Original paper documentation may be scanned ana stored electronically for practical reasons. After scanning, the original paper document: ‘A. Shall be discarded following established principles on waste disposal. B. Shall be kept on file for future reference. C. Shall be considered for retention or disposal depending on legal or regulatory requirements and other factors. D. None of these. 27.As per PSQC 1, in the case of an audit, final engagement files should be completely assembled not more than ___ days after the date of the audit report: A. 60 B. 30 Cc. 10 bo 5 28.The normal retention period for audit engagement documentation is no shorter than from the date of the audit report. Two years B. Four years C. Five years D. Seven years ReSA 735-9807 / 734-3989 / (0910) 439-1320 Pages 05ReSA: The Reveew School of Accountancy Aueting Theory: Quality Contras AT-05 29. A process comprising an ongoing consideration and evaluation of the firm’s system of quality control, including a periodic inspection of 3 selection of completed engagements, designed to enable the firm to obtain reasonable assurance that its system of quality control is operating effectively. ‘A. Inspection C. Quality review 8. Engagement quality control review D. Monitoring 30. In relation to completed engagements, these are procedures designed to provide evidence of compliance by engagement teams with the firm's quality control policies and procedures. A. Inspection Monitoring 8. Quality control D. Engagement quality control review 31. The inspection of a selection of completed engagements is ordinarily performed on a cyclical basis. Engagements selected for inspection include at least: ‘A. one engagement for each engagement partner over an inspection cycle. 8. two engagements for each engagement partner over an inspection cycle. C. one engagement for each firm over an inspection cycle. D. two engagements for each firm over an inspection cycle. 32. An inspection cycle ordinarily spans no more than: A. One year. B. Two years. C. Three years. D. Four years. 33. The firm should communicate the results of the monitoring of its quality contro! system to engagement partners and other appropriate ‘nd.viduals within the firm at least every: A. six months, B. 12 months. C. two years. D. three years. 34. John and Co. is a firm of certified public accountants. One of the partners, Mr. Grant has instructed a senior director, Collin to conduct an inspection (cold review) of two past audits; MPA corporation and DPA Corporation. Collin was one of the team members of the MPA engagement team. He had also assisted one of the partners in performing the hot review of DPA Corporation. If you are Collin would you conduct the inspection? A. Yes, as Collin is in a better position to conduct the inspection because of his previous experience with the engagements. B. Yes, PSQC 1 did not mention any prohibition relating to members of the engagement team conducting inspection €. No, Collin should not conduct the inspection of these engagements as he has been associated with them is some manner D. No, Collin does not have the necessary competence as he is only a director, inspection must be performed by an audit partner. 35. Anthony and Company is a firm of Certified public accountants which has two partners, Anthony and Hooper. In the current year the firm celebrated its 5” in practice. The firm has had a system of quality contro! from the beginning which has ensured that each audit is conducted satisfactorily. However the partners have never monitored the functioning of the quality control system. Is the firm required to implement policies and procedures in monitoring completed engagement? A. Yes, PSQC 1 requires that the firm must have policies and procedures in monitoring its quality control policies and procedures. B. Yes, but since this firm is composed only of two partners, they can perform the monitoring once every 5 years. C. No, PSQC 1 does not require monitoring within the firm, since the Firm is required to renew its accreditation with BOA once every three years. D. No, since the firm is a small practice and PSQC 1 does not require monitoring for small practice. 36.ABC and Company has just completed its annual independence review. Gerry the partner in- charge for independence is reviewing @ completed copy of the independence declaration form and noticed that Miss Rita an audit manager declared that his husband was newly hired as a controller of a Company where Miss Rita is the engagement manager. As partner-in charge for independence what is the best course of action to take in the situation? ‘A. Discuss the matter with Miss Rita and the Engagement partner and ensure that all work done by Miss Rita are properly reviewed by the engagement partner. B. Assigned an Engagement Quality Control Reviewer to ensure that all judgment made by Miss Rita are reviewed and ensure she remains objective C. Transfer Miss Rita to another engagement to rediice to risk of non-compliance with the Independence requirement D. Discuss the matter with management and those charged with governance and if they agree to continue with Miss Rita as audit manager, then should continue managing the engagement. ReSA% 735-9807 / 734-3989 / (0910) 439-1320 0-1 u Page 4 of 5Review School of Account fting heoy. Quay Cans AT-05 37. In Performing an acceptance and continuance procedures for a newly accepted engagement, ‘Ace a new partner in the Firm should obtain information relating to: I. The integrity of the clients management Il, Independence of the Firm Il. _ Competency to serve the client appropriately ‘A. Land If only B. Iland III only C. Land HIT only D. I, Mand HI 38.The accounting firm Sittie and Francis, CPAs establishes quality control policies and procedures when accepting or continuing a client relationship. Sittie and Frands, CPAs does this primarily to: ‘A. provide reasonable assurance that personnel are adequately trained to fulfill their responsibilities. 8B. monitor the risk factors concerning misstatements that arise from the misappropriation of assets. C. document objective criteria for the CPA firm's pee: review. D. minimize the likelihood of associating with a client whose management may lack integrity. 39. Who is responsible for forming a conclusion on compliance with independence requirements that apply to the audit engagements? A. Audit staff B. Audit supervisor C. Engagement manager D. Engagement partner 40. Which element/s of quality control is/are applicable to the following scenarios? Scenario I - Each office of the Nicole & Co., CPAs is visited at least annually by review persons selected by the director of auditing and assurance services. Procedures to be undertaken by the reviewers are illustrated by the office review program. ‘Scenario II ~ At all stages of any engagement, an effort is made by Vince and Ellen, CPAs to involve professional staff at appropriate levels of auditing and assurance decisions. Various approvals of the assigned manager and partner aré obtained throughout the audit ‘Scenario I: Monitoring; Scenario Il: Leadership Responsibilities ‘Scenario I: Engagement Performance; Scenario II: Human Resources Scenario I: Engagement Performance; Srenanc II: Leadership Responsibil ‘Scenario I: Monitoring; Scenario II: Engagement Performance PoeP -end of AT-05- ReSAM735-9807 / 734-3989 / (0910) 439-1320 i . Page 5 of 5