57 5a 50 © Minimize thelkehood of association with cients whose ‘management licks integrity 4 Anvcipate before performing any field wosk whether an ‘wamodifedopiaion can be expressed Tn makinga decision to acceptor tain client, the rm Tamang lent, the rm should 2. Is competence ts ability to comply with ethical equisements The integrity of the cents management, ‘@) All duce should be considered A CPA firs quay contol procedures pertining to the cccpance of propestne and cee woud mest Bey Tagay of management at to wheter dinaicements eween the predecessor strand eprom cies vere resored stony 1k Consideration of whether mic compete evidential saver maybe obvined to afford 1 enscnae bae Ingary of hid comps © Inguy ofthis pares, soc a the prospective cet bate and atorne tation eedog ie rreperve cant sd er uganent, 4. Conidertion of whether th ncn contol suuctue 4 sulfcenly effective to permit seducnos ie he sed subnet Quality contol policies and pocedutes shoul provide the firm reasoaable assurance thatthe policies and procedures sclating to the other elements of quality Contec are being fective applied. This statement define the quay come a. Planing 1b. Independence, integsty and object. Assignment @ Monitoring oo 6 @. 6. In connection with the element of monitoring, a CPA Gem's system of quality control should ordinarly provide forthe ‘maintenance of 2. A fle of minites of staff meetings Updated personnel les ©) Documentation to demonsteste compliance with its polices snd procedures 4. Documentation to demonstrate compliance with pet review dvectives A deficiency in the firm's system of quality contol is an indication thet the ait engagement was not performed in accordance woth the profesional standards the audi report ianued were not appeopeae both sand ethers nor b aor Te involves « study of appraisal by the Bosed or its duly suthorized representatives of the quality of audit of Bianca statements through an evaluation of the quality control measures instnsted by the CPA firm to arcertain compliance vith ethial and technical standards of pubic practice 3 Qual review Peer ew = Compince seit External sade ‘Which of the following is esponsible fr establishing auiing standards that will become generally accepted in the72, Which ofthe following if not one ofthe reasons that an 1 1. Provide reasonable, bt ot absolute assurance on the 4% The auditor commonly examines # stmple, ther than 4, este popuon of tanscdons counting presentations contain complex estimates ‘which iherend involve maceeing: Fraudvlently prepared faancial statements ate often difficult detect, Auditoes believe that reasonable assurance is suficent Jn the vast majoity of eases, Te erponsily forthe preparation ofthe Snanca sements andthe acompuyang foots ease ‘The auditor a — Nine rh mangemen: ad he audrey Management forthe stterents and the roe forthe peg ‘Which ofthe following surement is true wheat the CPA has ‘been engaged to do an audit engagement 4 The CPA fms engaged and paid by the chen; therefore, ‘he Ges Ima primary responsbiy to be an advocate ee the cine 'e_The CPA fim is engage and paid by che cen, but the Primary benefice of the audi ae the statement vere © Should sitston acse where there is ‘no convincing authoritative standaed avaible, and thee i choice of actions which could impact cents financial satemeats citer positively or negatively, the CPA i recto endorse the choice which iia the chants iarese, AS long as CPA firms are ‘competent, iis not requized that they remain unbinged 7 2 Chapter 2 ‘THE PROFESSIONAL STANDARDS When auditing financial statements an auditor assumes certain protessional rsponsbites Auditors opimon must be based on an ‘xamintion conducted in accordance with professional standards, Fale to comply with these standards exposes the auditor to risks sich as loos of public espect or even assessment of legal damages, ‘Standards are established to measure the quality of performance of individals and organizaons Standards eating othe accounting profession concern themselves with CPAs profesional qualities, Ute jnginent eared Uy the CPA i he peafonumance OF dit profesional engagement, and the CPA fr’s quality coatel polices td procedures ‘The Board of Accountancy promulgated ten Tai ase modanie mute fellowed by CPAe when auditing financial statements, Philippine Standards on Auditing (PSAs) ate sued to claify the ‘meaning of these ten GAAS. Aldi peocedues ate the means ‘sed by the auditors in ataining che qual eequied by the standards Generally Accepted Auditing Standards (GAAS) GAAS represent measures of the quality of the auditor’ petformunce: These standards should be looked as inant Honda of performance that auditors should follow. These tea GAAS sre grouped into gene, fieldwork and reporting standardq General Standards 1 “The examiation itt be performed by pemnior etions having adequate techie taping td Proficiency as an auditor. : iatecaes sites eee ee Inne ntl aio aed Dus professional care isto be exercised in the pesformance ofthe ait nd i the preparation ‘the report. ats o u Standards of Fieldwork 4. Theworkis robe adequately planned ad ssitans, if any, are to be propery superieed, “There ie to be « proper crudy and evaluation of cevisting internal control ae bare or elance theron, tnd fo the determination of the resultant exent of the tests ro which auditing procedures ate to be restricted 6. Sulficient competent evidential matter is to be ‘obtained dough inepection, abrervation, inguiies sand confirmations talon » reasonable basis for sn opinion sequding the Saancil statements onder Standards of Reporting 7. The report’shall state whether the financial statements are presented in accordance with generally accepted accounting panies 8. The report shall identify those circumstances ia ‘which panciples have not been consistently observed Jn the curent petiod in relation tothe preceding period. 9. Informative disclosures ate ta be tegarded as reasonably adequate unless otherwise stated inthe 10. The report shall either contain an expression of ‘pinion regarding the financial statements, taken a5 A whole, oan asserion tothe effect that an opin ‘cannot he expressed When an overall opinion exnnot be expressed, the reasons therefore shouldbe sated 3In all cases, where an auditor name is associated with the financial statements, the report should contain a clear-cut indication ofthe character of the auditors examination if any and the degree of responsibly hei taking = — = @ PHILIPPIVE STANDARDS ON AUDITING (PSAs) ReledService ‘The Auditing and Assurance Standards Council (ASC) has been given the task to promulgate auditing standart practices and procedures which shall be generally accepted by the sccounting profession in the Phiippines.The structure of ‘AASC pronouncements is shown in Figure 22. c Procedures Engagements 2 Adoption of Inteenstional Standards To facilitate the preparation by the ASC of its Pronouneements and to attain uniformity of | those Dronouncements with intematioaal auditing standasl, the AASC has approved the adoption ofthe Intemational Standards on Auditing (ISAS), International Standards on Assurance Engagements ISAES), International Stands ‘ther Asuance rgagements (on Review Engagement (ISREs) and International Standards on Related Servicer (SRS) isuct by the International Auditing and Assurance Board (AASB) ‘created by the International Federation of Accountants PAC). ASC Pronouncements Framework for ssrnce Eagients In this connection, the AASC undertakes a review of the standards and practices statement insued by LAASB to Setermine if these can be adopted in the Philippines with oF without changes, after considering any local ‘requirements impored by law or peace Figure 2.2. Saucture of AASC Pronouncemeats 36 aSYSTEM OF QUALITY CONTROL, 1 the pbc is ory on th penona CDA" woo is essential a appropet cont re putin pet ene Sha thee wodk bs constendy of high gaty’ The sce for practi CPAs to ples minain quliy coed is eed he ta aa oy ducted by aut ere Ie ely by lamenting entra poles and procedie that CPA® can cue ata tebe of hes ams etm thane ref guy Quality contol are policies and procedures adopted by CPAs to provide reasonable assurance of conforming with professional standards in pedo auc and related services ‘Under Philippine Standasds on Quality Control (PSQO) 1, « firm has an obligation to establish a sytem of quality contol Aesigned to provide i with reasonable aesueaace that the fm sods penonnel comply with profesional andar a seglatory and egal requirements, nd that the report issued by the firm are appropriate inthe circumstances. In thie 12. Elements ofa System of Quality Control PSA 220 states that audit fm should implement policies tnd procedures designed to ensure that all suits ate ‘conducted in accordance with PSAs Ps “The quality control policies and procedures adopted by sud fms vary depending on the fim’ size and nature ofits pracice, cose benefit considerations and other factors: PSA 220 ha identified the following quality ‘contol polices that may serve asa guide ro audit Gms in establishing thei own system of quality conto 4 LEADERSHIP RESPONSIBILITIES FOR QUALITY ON AUDITS “The fem should establish policies and procedures designed to promote an internal culture based on recognition that quality is essential in the performance of the engngemens, “The engagement pattaes should take responsibilty for the overall quality on each audit engagement 10 ‘which the partner is assigned. The engogement partner should set example regding the quality of but by emphasizing dough actions and messages the imporance of performing wosk that complies with profesional sumndaids, complying with the Frm’ quality contol policies and procedure, and ising appropriate audit eeports. 4 ETHICALREQUIREMENTS “The frm should establish polices and procedures designed to provide it with easonable assurance that {he firm aed ie personel comply with ethical requirements, which include: a Tatepsiys Objectivity, ©. Professional competence and due case; 4 Confident: and Professional behavior »‘The engagement partner should consider whether ‘members of the engagement team have complied With these ethical principles. Ay issues involving ‘egugcment team member® non-compliance with Gal eget mist be prope resale’ nd INDEPENDENCE ‘The frm should establish polices and proceduzes designed t provide iewith reasonable assurance that the members ofthe engagement tem, the firm sad, where applicable, the network firms. maintain independence when providig assurance services ‘The engagement purine shuld orm oncson ‘on compliance with independence equiemens that pply to the audit engagement, The engagement patiner should 5 Obtain relevant information to identify sireumstances and relationships that create threats to independence; ‘Evaluate information oa ientied beetches of the imi independence policies and procedures to detcrmine whether they create & threat to Independence; © Take appropsiate safeguards to eliminate such threats o reduce chem to an acceptable level, and 4 Document conclusions on indepeadence and the basis for sich concharion, ACCEPTANCE AND CONTINUANCE OF (CLIENT RELATIONSHIPS. ‘he frm should esblish polices and proce for the acceptance and continuenee of client « soashipe sd speci enggenens, designed to rv h reonable seen: at iw oly cre or conane retoesipe and engagement coer ie [Pus consid the integiy ofthe cent iS TSeompetentto peso te engagement aad Ths te capes, te and eure to 60 ssa Gan comply wih chia quirements “The engagement partner shoul be satisted that appropiate procedures eegading the acceptance tint eontinusnce of cnt relationships and ‘erific audit engagement have been followed, tind that conclsionsfeached inthis regard are ppropete and have bees documented. HUMAN RESOURCES and ASSIGNMENT ‘he fm sould ela pole and poets dried toprordc with esonsble surance that {has sffcent personnel with the capabilities, Eompetence and commitment t eal secret perform the engagement Sach pois fed provdure shold ies unves coneeming, penenne Pe ecritiment Performance evluaoa, compensation an romodons + Cxpabies and competence 1S Clteer developmen; aad 1 Aisipument of engagement rams “The engagement pane shold be said tha the opgemnent teach cllctvly has the appropiate CSprblites, competence and sine to peeform the te eagpement in tcocdance ith profenional Standards tnd epltory adel eget and {o cal an autor’ sport that appropiate in the ercumsancs fo be med aENGAGEMENT PERFORMANCE ‘The frm should establish policies and procedures designed to provide it with rearonable assurance oo that The engines pues shoul ke responsi forthe deci, sipetrsion ceiew and ore formance ofthe sat cogent *Asttaas shoplt be ibfoemed of chair fesponsblies, the aatte of the eniys lin, poten pb tht ny ass ed the dtd approsch ro te performance of te eamprens Supervision “This involves ‘Mii, resolving accounting snd sade issues, sod Woinidering the level of consultation ‘ppropsiate forthe engagement ee meee procedures, evidence and documentation are _pproptiate to support the conclison seached + Consutation- citer within oF outside the firs’ 2 ‘The engagement pane shoul 1 Beseyponale forthe eagagement tem Reconciliation 14. The genenlly accepted sandaeds of repoding encompass all te falowg pe Sms oo ny tral cone Sone appar of sxounng picpes © tomar acon SL inmty of nme semen wih GAAP 15, The tid genera accepted andar of reporting in ding est Pe Thebes finuncial sateen at presented in conformity wih GAAP 1) Wher accounting principles have been consistently breed ‘dog of dachnaes ‘a pression of pinion onthe nancial tment Salons woe Ss 16, The objective ofthe consistency standaed isto provide assurance that There ate o vations in the format and presentation of financial statements Substantially different transactions and events axe not sesounted for an identical asi c‘Theauditorisconsted before material changes are made in the application of accounting principles. (H The comparability of financial statements between periods in not mately fected by changes in accounting principles without dclosure “The fourth genni accepted sting standard of reporting 1) quran nor o renders port whenever on auto Spe tocited i acl atements The overall Duos ofthe four sandr! of eporting 0 rege hat rr Se thatthe examination of Seana statement has been conduced in sconce with general accepted tuiting standard. °‘b Indicate the charcter of the auditor's examination and the degree of responsibility assumed bythe auditor © Imply that the auditor is independent in mind ae well x in appearance with respect to the financial stoments under examination, 4. Express whether the accounting principles uted in Preparing the financial statements have been applied ‘onsite in the penod under examination 18. The fourth reporting standard requir the auditors report to 19. contin an exprenion of epinon tegen ae ee satenent tena «whol eran mton tere nat 28 opinion cannot bees The eee eee Sandel it pee 4 Anu im pring nes ance soot on be oe Anson ein det ophionon ach of the Bsc Sosa treme & Maneeent fom els Gal pon forthe A. ta fini scan <2) Mien soi the dee of pon ‘the auditor is assuming a The auditor isnot lable to his client for a Negligence ‘i Fraud © Dishonesty 4. Errors in application of judgment Phipine Stnderde on Auditing (S.A) 20, ‘The Philippine Standards on Auditing issued by the Ancing snl Assurance Stands Council 4a interpretations of genealy accepted audi standards, tern * 8. dete een wed in eating he ie petenaion of the financial statements. Tes e 0 a1 22, 2 2 ‘Gate interpretations of generally accepted accounting dt ecptonalguincs which an stor may chote te opto an auditor may choote 10 follow or not follow when conducting an audit According to Philippine Standards on Auditing, because there sce inherent limitations in an audit that affect the auditor’. abily to detect matenal misstatements, the auditor i: ‘A guarantor but not sn neuer of the statements ‘An insures bot aot» guarantor ofthe statements Neither a guarantor aoean insurer of financial statements Botha guanatorandaninsurerof the fnancial atements An auditor need not abide with specific sequitement of PSA ifthe auditor believes that. 4. The amount insignificant. 1B The requirement of the PSA is impractical to perform. <& The requirement of the PSA is impossible to pesform. ‘@ Any ofthe given three choices is tonrece, “The Philippine Standards on Aung canbe described at 4" Protiling ery specific guidance about the specie acavies an auditor must perform on each engagement b Similar to Philppine Fisancial Reporting Standards RS). o ©) Defining the minimum standards of performance for suitor. 4. Providing assurance chat an auditor wil not issue an Jnapproptate audit opinion ‘Which ofthe folowing best deseibes the function of Auditing and Assuraice Stndatds Council (ASC)? To establish and promulgate generally accepted accounting principles in the Phiippces ‘To vestigate violations of Accountaney Law To promulgate auditing standards, practices and procedures that shall be generally accepted by the sccounting profesion ia the Philippines 44. To determine the minimum requitements for admission inthe secounting profession. & st25. Pronouncements issued by AASC may be in the form of Philippine Philippine Pbiippine Philippine Standards on Standards om Standards on Standards on ‘Anditing Assurance "Review Related Series Exmegmentr Engagements @ we Yee Yer Yer Bes No Yes No e Yer Yer Yes No 4d No Yes No Yes 26. Which ofthe following is correct sbout Philippine Auditing Practices Statements (PAPS)? fs. Thece are issued to resolve inues slag to PSAR 1D These surements are intended to have the authority of| PSAs ‘Thete statements ate issued to provide practical assistance to auditors in implementing PSAs or to promote good practice 4. ‘These statements ate forms of interpretations issued by AASC. 27. Which of the following pronouncements sued by ASC is ) Gre masoosbie sac tet the Bem a whole wil comply with proesoal tana133, The main purpose of implementing a system of quality contol sto provide the Gem with reasonable surance that (a The fiem and its personnel wil comply regulatory and legal eguirements 1b The audit wil be performed in accordance with PSA, ‘The firm will issue « zeport that is appropiate in the All of the above 34, The nature and extent of 2 CPA fms quality contol policies and procedares depend on ‘The CPA Fir Sige The nature of the CBA Con-bongit Agesion Si Firs Peace coniiratons a) Ye Yes Yes Bes xen No ees No Yer 4 No Yer Yes 35, Which of the following is not an esteatial component of sguality contro 1.) Policies and procedures to ensuze tht frm personnel aré acuvely engaged in masketingstateyies bb Policies and procedure tenn thar the wrk peeformed by firm personae meet applicable profesional andar. © Policies co ensure that personel maintain their Independence in fact and in appearance. 4. Policies that ensure that monitoring activities are effectively applied. 36. The objective ofthe quality contol policies to be adopted by ‘an audit fim will oxdiaanlyincompomate all of te following exeepe Gar Risk assessment 1b Leadership sesponsibities 6 Eaagenentperomance se ar 38. 3. 4“. “The person responsible forthe audit engagement and its peeformance and forthe auditor epost hats sed in behalf f the Bm isthe 3. quality contol reviewer ‘engagement partner lenth management 1S, nadie manage ‘Which of the following ie an element of a CPA firm's quality control system that should be considered in establishing its ‘gulry contol policies and procedures? 2) Complying with hws and relations 1b Using statscl sampling techniques Independence Consideration of audi sk and matey Elements of a CPA fms quality contol that should be ‘considered in establishing its quality control polices and procedures must include “Montene Ethical Reairomene Engagement Peformance a) Yes ‘Yes Yes % Yes Yer No Yet No Yes SNe Yer You ‘Which of the fooingis on ofthe cements of «CPA Gem's sualiy contl tems Texderhip msponsbites Compotr sre sult echaiques ‘Cootol scons Cont envionment ‘Which of the folowing qualsy contol objecdves woul be least imporant to the audio? Engagement perme Determination of audit fe Independence42. A quality contol policy that requires personnel in the fm to adhere to independence, imegriy, objectivity, confidcatiaty and professional behavior, elates to Ga “Babica Requirements Human resources, © Assignment 4 Conmatation ‘Which of the following qualiy contil polices and procedures oes not relate to human resources and asignment? + Emphasize independence of mental attude in tining rogram and in supervision and review ofthe audits 1b Monitor the effectiveness of reruling programs © [dent etetis which will be considered in evaluating individual performance and expected profceany (®), Meouty on ney bass he wang equemens of specific audits. In pursuing a CPA firm's qualsy control objectives, » CPA, firm may maintain records indicating whieh pastaets or employees of the CPA firm were previously employed bythe CPA frm’ clients. Which quality contrel element would tis bbe most likely to satis? ‘Monitoring Assignment © Independence 4 Skis and competence 45. A procedure in which a quay contol partaer periodically tests the application of quality contol procedutcs is mort duet relted to which qualty contol clement? >), Engagement peformance 1b” Independence, integrity, and objectivity © Monitoing 4. Personnel management 46. ” 4 #. In connection wth the cme of engagement performanes {CPA fis oyrem of gui consol ria prvie tht al pene! 2 Fv the knowledge reguised to enable them ofa reponbiier signed Review and etcomplane with he ems guty control pobses and posed c. Eat sisce fom pesions having appropri level of knowlege, odgnent and asthor 4. Appropstely maintain independence whea providing Maintaining or proving acces to adequate reference Ubeaties sand other authoritative sources isa procedure that is most likely performed to comply with the policy ot a monitoring Bskils and competence consultation assignment ‘Which of the Following quality control procedures slates to engagement peeformance? a Hig BD Direction «Professional development & Advancement ‘Within the content of quality conto, the primary purpose of ‘continuing professional education and waining activites is to tenable CPA firm to provide its personne with: 1 technica taining that asurer proficiency a8 2 valuation © expert. {professional edaaton thas requizedin orto perform ~ With due profesional cae. knowledge required to fall assigned responsibilities. 2 nowledge requited to perform a per zeview s50. tn compliance with he lement of human tures, should address issues relating to eo A See etme & smegma egagemereams © Clase iene of eiion 51, In pursing the ms qual " suality contol objectives wih respece to assigning pesionnel to engagement, the auditors may we Policies and procedures suchas 4 Designating senior qualifed pesonne provide advice on accounting oF auditing questions theoughowt the engugement. = b Requiting timely identification of the staffing sequrements of specific engagements 50 tat satay squalid personal can be made aaisbe 7 Esabishing at ery lvl poly fo ering tat {includes minimum standards of academic pepantn 4 teimelitmens. rerio Evaluate cent upon a ‘coutence of specified events to determine whether the relationships ought to be continued ees 52, Is connection with the element of assignment, a CPA fray system ofgualiy coo eof cnet ish tes Provide adequate sperision at ll eve sal level, coor the tining ability tnd expennce of the penmin saiged Encoutage personae! to we autora sources 0a ‘comple onal mace « Reatieprepantion of time budgets for audi to eine miapowes sequen de thd 4. Enablsh quatfcaios dered os deemed necetasy fo vious levels of responsibility within the fim ss 53. ss 55. Which ofthe folowing i a policy that must be established to comply with the quality coatrol engagement performance? 1 The Bien isto be staffed by personnel who have atisined and maintained the technical standards and professional ‘competence required to enable them to full their \ responses 1k VThere is Sufficient ditection, supecvsion, and review ‘of work performed at all levels fo provide reasonable tssurance that the work performed meets appeopeiate ftandards of quali. e. Thefiem should asign responsibility foreach engagement fo an engagement partner 4. The continued adequacy and operational effectiveness cof quality control policies and procedures are to be cheered. “The wok perfumed bythe assistants shoud be seviewed by pesonnel of slat eal competence to cosier al of the 1 kc coacsions expeied ae consent with the enue ofthe work pesformed Whether the work wes adequately performed and documented Whether the objectives of th aut have bee achive Whether the cogegemeat personnel maintained independence “The primary fictor that should be considered in determining theextent of supervision needed by anasistatis the assistants Willingness to exercise de cate &) Competence ‘¢ _ Profesional ceifeation Independence ‘The primary puspote of establishing quality contol policies and proceduuts for deciding whether to accepts new cent i (a, Basle the CPA Sem to atest the intepiyof the client management. 1b Sati the CPA firm's duty to the public concerning the acceptance of new clients »