AUDITING & ASSURANCE PRINCIPLES

AT.106_Quality Control Standards

LECTURE NOTES

What is Quality Control?

For a CPA firm, quality control comprises the methods used to ensure that the
firm meets its professional responsibilities to clients and others. These
methods include the organizational structure of the CPA firm and the policies
and procedures the firm establishes.

Relevant Quality Control Standards

PSQC 1 deals with a firm’s responsibilities for its system of quality control and
applies to all firms of professional accountants in respect of:
• Audits of historical financial information
• Reviews of historical financial information
• Other assurance engagements
• Related services engagements

PSA 220 deals with the specific responsibilities of the auditor regarding quality
control procedures and engagement quality control reviewer (EQCR) for an
audit of historical financial information.

Objectives of Quality Control

The objectives of the firm is to establish and maintain a system of quality

control to provide it with reasonable assurance (not a guarantee) that:
• The firm and its personnel comply with professional standards and
regulatory and legal requirements; and
• Reports issued by the firm or engagement partners are appropriate in the
circumstances.

The nature and extent of the policies and procedures developed by an

individual firm will depend on various factors, such as its size, operating
characteristics and whether it is part of a network.

Elements of a System of Quality Control

The system of quality control should include policies and procedures that
address each of the following six elements:
a. Leadership responsibilities for quality within the firm
b. Ethical requirements
c. Acceptance and continuance of client relationships and specific
engagements
d. Human resources

Page 1 of 17
e. Engagement performance
f. Monitoring

The firm shall document its policies and procedures and communicate them to
the firm’s personnel.

Leadership Responsibilities for Quality within the Firm

This element requires the firm to establish policies and procedures designed
to promote an internal culture based on the recognition that quality is
essential in performing engagements.

This element is the ultimate responsibility of the firm’s CEO or managing

board of partners. In an audit engagement, the engagement partner shall
take responsibility for the overall quality on each audit engagement to which
that partner is assigned. Nonetheless, audit engagement teams have a
responsibility to implement quality control procedures that are applicable to
the audit engagement.

The firm’s leadership and the examples it sets significantly influence the
internal culture of the firm.

Ethical Requirements

This element requires the firm to establish policies and procedures designed
to provide reasonable assurance that the firm and its personnel comply with
relevant ethical requirements, including independence.

Relevant ethical requirements to which the engagement team and

engagement quality control reviewer are subject, ordinarily comprise Parts A
and B of the Code of Ethics for Professional Accountants in the Philippines
together with national requirements that are more restrictive.

At least annually, the firm should obtain written confirmation of compliance

with its policies and procedures on independence from all firm personnel
required to be independent by the relevant ethical requirement.

Acceptance and Continuance of Client Relationships

This element requires the firm to establish policies and procedures designed
to provide reasonable assurance that the firm will only undertake or continue
relationships and engagements where the firm:
• is competent to perform the engagement and has the capabilities, time and
resources to do so;
• can comply with relevant ethical requirements; and
• has considered the integrity of the client, and does not have information
that would lead it to conclude that the client lacks integrity.

Page 2 of 17
Competence, Capabilities, and Resources

Consideration of whether the firm has the competence, capabilities, and

resources to undertake a new engagement from a new or an existing client
involves reviewing the specific requirements of the engagement and the
existing partner and staff profiles at all relevant levels, and including whether:
• Firm personnel have knowledge of relevant industries or subject matters;
• Firm personnel have experience with relevant regulatory or reporting
requirements, or the ability to gain the necessary skills and knowledge
effectively;
• The firm has sufficient personnel with the necessary competence and
capabilities;
• Experts are available, if needed;
• Individuals meeting the criteria and eligibility requirements to perform
engagement quality control review are available, where applicable; and
• The firm is able to complete the engagement within the reporting deadline.

Integrity of Client

With regard to the integrity of a client, matters to consider include, for

example:
• The identity and business reputation of the client’s principal owners, key
management, and those charged with its governance.
• The nature of the client’s operations, including its business practices.
• 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.
• Whether the client is aggressively concerned with maintaining the firm’s
fees as low as possible.
• Indications of an inappropriate limitation in the scope of work.
• Indications that the client might be involved in money laundering or other
criminal activities.
• The reasons for the proposed appointment of the firm and non-
reappointment of the previous firm.
• The identity and business reputation of related parties.

Sources of information on such matters obtained by the firm may include the
following:
• Communications with existing or previous providers of professional
accountancy services to the client in accordance with relevant ethical
requirements, and discussions with other third parties.
• Inquiry of other firm personnel or third parties such as bankers, legal
counsel and industry peers.
• Background searches of relevant databases.

Continuance of Client Relationship

Page 3 of 17
Deciding whether to continue a client relationship includes consideration of
significant matters that have arisen during the current or previous
engagements, and their implications for continuing the relationship. For
example, a client may have started to expand its business operations into an
area where the firm does not possess the necessary expertise.

Declining an Engagement (Withdrawal)

The firm’s policies and procedures on auditor withdrawal may include the
following:
• Discuss with appropriate level of client’s management and those charged
with governance regarding appropriate action to take
• If appropriate, determine and discuss reasons for withdrawal from
engagement or from both engagement and client relationships
• Consider professional, regulatory or legal requirements for the firm
• Document significant issues, consultations, conclusions and basis

Human Resources

This element requires the firm to establish policies and procedures designed
to provide reasonable assurance that the firm has sufficient personnel with
the competence, capabilities, and commitment to ethical principles necessary
to:
• perform engagements in accordance with professional standards and
regulatory and legal requirements; and
• enable the firm or engagement partners to issue appropriate reports.

Personnel issues relevant to the firm’s policies and procedures related to

human resources include, for example:
• Recruitment.
• Performance evaluation.
• Capabilities, including time to perform assignments.
• Competence.
• Career development.
• Promotion.
• Compensation.
• The estimation of personnel needs.

Capabilities and competence are developed through:

• Professional education.
• Continuing professional development, including training.
• Work experience.
• Coaching by more experienced staff for example, other members of the
engagement team.
• Independence education for personnel who are required to be independent.

Page 4 of 17
The continuing competence of the firm’s personnel depends to a significant
extent on an appropriate level of continuing professional development so that
personnel maintain their knowledge and capabilities.
The firm may use a suitably qualified external person, for example, when
internal technical and training resources are unavailable. Suitably qualified
external person is an individual outside the firm with the competence and
capabilities 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 of
historical financial information or of an organization that provides relevant
quality control services.
Assignment of Engagement Teams
The typical organizational hierarchy of a CPA firm follows that of pyramidal
structure. They include, from the top of the pyramid, partners, managers or
directors, supervisors or seniors or in-charge associates, and staff or junior or
associates.
Position Responsibilities/Functions
Partners Owners of the firm. The assigned partner has
the overall responsibility for the quality of each
audit engagement.
Managers/ Supervises the audits conducted by the seniors.
Directors
In-charge/ In charge of audit fieldwork. The senior
Seniors supervises the work of the audit staff, reviews
working papers and time budgets, and assists
in drafting the audit report
Staff/Junior/ Perform the more detailed routine audit tasks.
Associates
Engagement Partners
Engagement partner is the partner (any individual with authority to bind the
firm with respect to the performance of a professional services engagement)
or other person in the firm who is responsible for the audit engagement and
its performance, and for the auditor’s report that is issued on behalf of the
firm, and who, where required, has the appropriate authority from a
professional, legal or regulatory body.

The firm shall assign responsibility for each engagement to an engagement

partner and shall establish policies and procedures requiring that:
a) The identity and role of the engagement partner are communicated to key
members of client management and those charged with governance;
b) The engagement partner has the appropriate competence, capabilities, and
authority to perform the role; and
c) The responsibilities of the engagement partner are clearly defined and
communicated to that partner.
Page 5 of 17
Engagement Teams

Engagement team comprises all partners and staff (i.e., professionals, other
than partners, including any experts the firm employs) performing the
engagement, and any individuals engaged by the firm or a network firm who
perform audit procedures on the engagement. This excludes an auditor’s
external expert engaged by the firm or a network firm.

The firm shall also establish policies and procedures to assign appropriate
personnel with the necessary competence, and capabilities to:
a) Perform engagements in accordance with professional standards and
applicable legal and regulatory requirements; and
b) Enable the firm or engagement partners to issue reports that are
appropriate in the circumstances.

Engagement Performance

This element requires the firm to establish policies and procedures designed
to provide reasonable assurance that engagements are performed in:
• accordance with professional standards and regulatory and legal
requirements,
• the firm or the engagement partner issue reports that are appropriate in
the circumstances.

Examples of policies and procedures on engagement performance are:

• Promotion of consistency in the quality of engagement performance
• Supervision responsibilities
• Review responsibilities
• Consultation
• Engagement quality control review (EQCR)
• Differences of opinion
• Engagement documentation

Consistency in the Quality of Engagement Performance

The firm promotes consistency in the quality of engagement performance

through its policies and procedures. Appropriate teamwork and training assist
less experienced members of the engagement team to clearly understand the
objectives of the assigned work.
Supervision

Engagement supervision includes the following:

• Tracking the progress of the engagement;
• Considering the competence and capabilities of individual members of the
engagement team, whether they have sufficient time to carry out their
work, whether they understand their instructions and whether the work is

Page 6 of 17
 being carried out in accordance with the planned approach to the
engagement;
• Addressing significant matters arising during the engagement, considering
their significance and modifying the planned approach appropriately; and
• Identifying matters for consultation or consideration by more experienced
engagement team members during the engagement.

Review

A review consists of consideration of whether:

• The work has been performed in accordance with professional standards
and applicable legal and regulatory requirements;
• Significant matters have been raised for further consideration;
• Appropriate consultations have taken place and the resulting conclusions
have been documented and implemented;
• There is a need to revise the nature, timing and extent of work performed;
• The work performed supports the conclusions reached and is appropriately
documented;
• The evidence obtained is sufficient and appropriate to support the report;
and
• The objectives of the engagement procedures have been achieved.

The work of less experienced team members is reviewed by more experienced

engagement team members.

Consultation

The firm shall establish policies and procedures designed to provide it with
reasonable assurance that:
a) Appropriate consultation takes place on difficult or contentious matters;
b) Sufficient resources are available to enable appropriate consultation to take
place;
c) The nature and scope of, and conclusions resulting from, such consultations
are documented and are agreed by both the individual seeking consultation
and the individual consulted; and
d) Conclusions resulting from consultations are implemented.

Consultation includes discussion at the appropriate professional level, with

individuals within or outside the firm who have specialized expertise.

Engagement quality control review (EQCR)

Engagement quality control review is a process designed to provide an

objective evaluation, on or before the date of the report, of the significant
judgments the engagement team made and the conclusions it reached in
formulating the report.

Page 7 of 17
Engagements requiring EQCR normally include:
a) Audits of financial statements of listed entities; and
b) Other engagements for which the firm has determined an EQCR is required.
Criteria for determining which other engagements are to be subject to an
EQCR may include, for example:
• The nature of the engagement, including the extent to which it involves
a matter of public interest.
• The identification of unusual circumstances or risks in an engagement or
class of engagements.
• Whether laws or regulations require an EQCR

The engagement report is not dated until the completion of the engagement
quality control review.

Engagement quality control reviewer is a partner, other person in the firm,

suitably qualified external person, or a team made up of such individuals,
none of whom is part of the engagement team, with sufficient and
appropriate experience and authority to objectively evaluate the significant
judgments the engagement team made and the conclusions it reached in
formulating the report.

The firm shall establish policies and procedures designed to maintain the
objectivity of the engagement quality control reviewer.

The firm shall establish policies and procedures on documentation of the

engagement quality control review which require documentation that:
a) The procedures required by the firm’s policies on engagement quality
control review have been performed;
b) The engagement quality control review has been completed on or before
the date of the report; and
c) The reviewer is not aware of any unresolved matters that would cause the
reviewer to believe that the significant judgments the engagement team
made and the conclusions it reached were not appropriate.

Differences of Opinion

The firm shall establish policies and procedures for dealing with and resolving
differences of opinion within the engagement team, with those consulted and,
where applicable, between the engagement partner and the engagement
quality control reviewer.
Engagement Documentation

Completion of the Assembly of Final Engagement Files

In the case of an audit a time limit to assemble final engagement files would
ordinarily not be more than 60 days after the date of the auditor’s report.

Page 8 of 17
Retention of Engagement Documentation

In the specific case of audit engagements, the retention period would

ordinarily be no shorter than seven years from the date of the auditor’s
report, or, if later, the date of the group auditor’s report.

Ownership of engagement documentation

Unless otherwise specified by law or regulation, engagement documentation

is the property of the firm.

Monitoring

Monitoring is a process comprising an ongoing consideration and evaluation of

the firm’s system of quality control, including a periodic inspection of a
selection of completed engagements, designed to provide the firm with
reasonable assurance that its system of quality control is operating
effectively.

This element requires the firm to establish policies and procedures designed
to provide reasonable assurance that the policies and procedures relating to
the system of quality control are: relevant, adequate, and operating
effectively.

The firm must establish policies and procedures on the following:

• Evaluation, communication and remediation of identified deficiencies.
• Complaints and allegations.
• Monitoring and evaluation include, on a cyclical basis, inspection of at least
one completed engagement for each engagement partner over an
inspection cycle of three years. Inspection refers to, in relation to
completed audit engagements, procedures designed to provide evidence of
compliance by engagement teams with the firm’s quality control policies
and procedures.

The purpose of monitoring compliance with quality control policies and

procedures is to provide evaluation of:
• Adherence to professional standards and regulatory and legal requirements
• Whether the quality control system has been appropriately designed and
effectively implemented
• Whether the firm’s quality control policies and procedures implemented by
engagement partners are appropriate in the circumstances

Documentation of the System of Quality Control

Each firm should document its quality control policies and procedures.

Page 9 of 17
This documentation provides evidence of the operation of each element of its
system of quality control.

Procedures should depend on such things as the size of the firm, the number
of practice offices, and the nature of the practice. The quality control
procedures of an international firm with many complex multinational clients
should differ considerably from those of a five-person firm specializing in
small audits in one or two industries. For example, large firms may use
electronic databases to document matters such as independence
confirmations, performance evaluations and the results of monitoring
inspections.
- done -

MULTIPLE CHOICE
1. A basic objective of a CPA firm is to provide professional services to
conform to professional standards. Reasonable assurance of achieving this
basic objective is provided through:
a. continuing professional education.
b. compliance with generally accepted reporting standards.
c. a system of quality control.
d. a system of peer review.
2. The objective of the auditor is to implement quality control procedures at
the engagement level that provides the auditor with reasonable assurance
that
a. the audit complies with professional standards and regulatory and legal
requirements
b. the auditor’s report issued is appropriate in the circumstances
c. both a and b
d. neither a nor b
3. The nature and extent of a CPA firm’s quality control policies and
procedures depend on
The CPA firm’s The nature Cost-benefit
size of the CPA firm’s practice considerations
a. Yes Yes Yes
b. Yes Yes No
c. Yes No Yes
d. No No Yes

4. Control policies and procedures designed to ensure that all audits are
conducted in accordance with PSA’s or relevant national standards or
practices. These policies and procedures should be implemented.
a. At the audit firm level only.
b. On individual audits only.
c. Either at the audit firm level or on individual audits.
d. Both at the audit firm level and on individual audits.

Page 10 of 17
5. A CPA firm may communicate its quality control policies and procedures to
its personnel in which manner(s):

Orally Written
a. No No
b. No Yes
c. Yes No
d. Yes Yes
6. Which of the following is not an element of quality control?
a. Acceptance and continuance of client relationships and specific
engagements
b. Human resources
c. Internal control
d. Monitoring
7. Which of the following is not an essential component of quality control?
a. Policies and procedures to ensure that firm personnel are actively
engaged in marketing strategies.
b. Policies and procedures to ensure that the work performed by firm
personnel meet applicable professional standards.
c. Policies to ensure that personnel maintain their independence in fact and
in appearance.
d. Policies that ensure that monitoring activities are effectively applied.
8. The firm should establish policies and procedures designed to promote an
internal culture based on the recognition that quality is essential in
performing engagements. Such policies and procedures should require the
firm’s chief executive officer (or equivalent) or, if appropriate, the firm’s
managing board of partners (or equivalent), to assume ultimate
responsibility for the firm’s system of quality control.
a. Ethical requirements
b. Monitoring
c. Human resources
d. Leadership responsibilities for quality within the firm
9. Who should take responsibility for the overall quality on each audit
engagement?
a. Engagement QC reviewer c. Engagement team
b. Engagement partner d. CPA firm

10. The implementation of quality control procedures that are applicable to

the individual audit engagement is the responsibility of the
a. CPA firm
b. Engagement quality control review
c. Engagement team
d. Expert contracted by the firm in connection with the audit engagement

Page 11 of 17
11. In pursuing a CPA firm’s quality objectives, a CPA firm should adopt
policies and procedures to enable it to identify and evaluate circumstances
and relationships that create threats to independence, and to take
appropriate action to eliminate those threats or reduce them to an
acceptable level by applying safeguards, or, if considered appropriate, to
withdraw from the engagement. Which quality control element would this
be most likely to satisfy?
a. Ethical requirements
b. Monitoring
c. Human resources
d. Leadership responsibilities for quality within the firm
12. The engagement partner should be satisfied that appropriate procedures
regarding the acceptance and continuance of client relationships and
specific audit engagements have been followed, and that conclusions
reached in this regard are appropriate and have been documented.
Acceptance and continuance of client relationships and specific audit
engagements include considering:
I. The integrity of the principal owners, key management, and those
changed with governance of the entity.
II. Whether the engagement team is competent to perform the audit
engagement and has the necessary time and resources.
III. Whether the firm and the engagement team can comply with ethical
requirements.
IV. Significant matters that have arisen during the current or previous
audit engagement and the implications for continuing the relationship
a. I only c. I, II and IV only
b. I and II only d. I, II, III and IV
13. Quality control policies for the acceptance and continuance of clients are
established to:
a. Enable the auditor to report on management’s integrity
b. Comply with standards established by regulatory bodies
c. Minimize the likelihood of associating with management that lack
integrity
d. Reduce exposure to litigation from failing to detect fraud
14. The firm should establish policies and procedures designed to provide it
with reasonable assurance that it has sufficient personnel with the
capabilities, competence, and commitment to ethical principles necessary
to perform its engagements in accordance with professional standards and
regulatory and legal requirements, and to enable the firm or engagement
partners to issue reports that are appropriate in the circumstances.
a. Ethical requirements c. Monitoring
b. Engagement performance d. Human resources
15. In pursuing its quality control objective with respect to assigning
personnel to engagements, a CPA firm may use policies and procedures
such as

Page 12 of 17
 a. Rotating employees from assignment to assignment on a random basis
to aid in the staff training effort
b. Allowing staff to select the assignments of their choice to promote better
client relationship
c. Assigning a number of employees to each engagement in excess of the
number required so as not to overburden the staff and interfere with the
quality of the audit work performed
d. Requiring timely identification of the staffing requirements of specific
engagements so that enough qualified personnel can be made available
16. Indicate whether the following functions would be performed by:
P – Partner S – Senior
M – Manager AS – Audit Assistant
I. Supervises two or more concurrent audit engagements
II. Performs detailed audit procedures
III. Overall responsibility for audit
IV. Signs audit report
I. II. III. IV.
a. P AS S M
b. M A M P
c. M AS P P
d. P AS S M
17. The objective of quality control mandates that a public accounting firm
should establish policies and procedures for professional development that
provide reasonable assurance that all entry-level personnel
a. Prepare working papers that are standardized in form and content
b. Have the knowledge required to enable them to fulfill responsibilities
assigned
c. Will advance within the organization
d. Develop specialties in specific areas of public accounting
18. The skills and qualities of the engagement team is likely to provide a
positive contribution to audit quality where
a. partners and staff understand their clients’ business and adhere to the
principles underlying auditing and ethical standards.
b. partners and staff exhibit professional skepticism in their work and are
robust in dealing with issues identified during the audit.
c. sufficient training is given to audit personnel in audit, accounting and
industry specialist issues.
d. all of the above.
19. This quality control element requires a CPA firm to establish policies and
procedures to provide it with reasonable assurance that engagements are
performed in accordance with professional standards and regulatory and
legal requirements, and that the firm or the engagement partner issue
reports that are appropriate in the circumstances.
a. Ethical requirements c. Monitoring
b. Engagement performance d. Human resources

Page 13 of 17
20. Engagement supervision includes the following, except:
a. Tracking the progress of the engagement.
b. Considering the competence and capabilities of individual members of
the engagement team.
c. Addressing significant matters arising during the engagement,
considering their significance and modifying the planned approach
appropriately.
d. Discussion at the appropriate professional level, with individuals within
or outside the firm who have specialized expertise.

21. Engagement review includes the following, except:

a. Identifying matters for consultation or consideration by more
experienced engagement team members during the engagement.
b. Considering whether the work has been performed in accordance with
professional standards and applicable legal and regulatory requirements;
c. Determining if there is a need to revise the nature, timing and extent of
work performed;
d. Contemplating if the work performed supports the conclusions reached
and is appropriately documented;
22. The following statements relate to the engagement partner’s
responsibility to conduct timely reviews of the audit documentation to be
satisfied that sufficient appropriate evidence has been obtained to support
the conclusions reached and for the auditor’s report to be issued. Which is
false?
a. The engagement partner’s review of the audit documentation allows
significant matters to be resolved on a timely basis to his/her
satisfaction before the auditor’s report is issued.
b. The engagement partner should review all audit documentation.
c. The engagement partner should document the extent and timing of the
reviews.
d. The reviews cover critical areas of judgment, especially those relating to
difficult or contentious matters identified during the course of the
engagement, significant risks, and other areas the engagement partner
considers important.

23. The auditor with final responsibility for an engagement and one of the
assistants have a difference of opinion about the results of an auditing
procedure. If the assistant believes it is necessary to be disassociated from
the matter’s resolution, the CPA firm’ s procedures should enable the
assistant to
a. Refer the disagreement to regulatory or professional bodies.
b. Document the details of the disagreement with the conclusion reached.
c. Discuss the disagreement with the entity’s management or its audit
committee.
d. Report the disagreement to an impartial peer re- view monitoring team.

Page 14 of 17
24. A process designed to provide an objective evaluation, before the
auditor’s report is issued, of the significant judgments the engagement
team made and the conclusions they reached in formulating the auditor’s
report.
a. Peer review
b. Management review
c. Engagement quality control review
d. Concurring review
25. Engagement quality control review is normally done to which of the
following engagements?
a. Audit of financial statements listed entities
b. Other audit engagements deemed necessary by the firm
c. Other non-audit engagements deemed necessary by the firm
d. All of the above
26. A partner, other person in the firm, suitably qualified external person, or
a team made up of such individuals, none of whom is part of the
engagement team, with sufficient and appropriate experience and authority
to objectively evaluate the significant judgments the engagement team
made and the conclusions it reached in formulating the auditor’s report.
a. Engagement partner
b. Engagement quality control reviewer
c. Staff
d. Personnel
27. An additional partner review of the audit and its findings is typically
performed by an experienced member of the firm. Which of the following
individuals is qualified to perform this concurring partner review?
a. The engagement partner who has worked on the client for three years.
b. An employee of the enforcement division of the SEC.
c. An experienced partner of the firm who did not actively participate on
the audit.
d. A partner of another firm or office who knows the client well and who
was a vital member of the audit team.
28. Completion of assembly of final audit files should be done
a. Within 60 days after the date of the auditor’s report
b. Not be more than 90 days after the date of the auditor’s report
c. No shorter than seven years from the date of the auditor’s report
d. Every five years
29. This quality control element is concerned with providing reasonable
assurance that policies and procedures related to the other elements are
suitably designed and being effectively implemented.
a. Monitoring c. Human resources
b. Engagement performance d. Ethical requirements
30. Inspection cycle is normally done over how many year(s) for each
partner on completed audit engagement?

Page 15 of 17
 a. One year c. Three years
b. Two years d. Four years
- now do your DIY Drill-

DO IT YOURSELF (DIY) DRILL

1. Which of the following are elements of a CPA firm’s quality control that
should be considered in establishing its quality control policies and
procedures?
Monitoring Human Engagement
Resources Performance
a. No Yes No
b. Yes No No
c. Yes Yes Yes
d. No No Yes
2. The least important evidence of a public accounting firm's evaluation of its
system of quality controls would concern the firm's policies and procedures
with respect to
a. Employment (hiring).
b. Confidentiality of audit engagements.
c. Assigning personnel to audit engagements.
d. Determination of audit fees.
3. One purpose of establishing quality control policies and procedures for
deciding whether to accept a new client is to
a. Enable the CPA firm to attest to the reliability of the client.
b. Satisfy the CPA firm’s duty to the public concerning the acceptance of
new clients.
c. Provide reasonable assurance that the integrity of the client is
considered.
d. Anticipate before performing any field work whether an unqualified
opinion can be issued.
4. A CPA firm's quality control procedures pertaining to the acceptance of a
prospective audit client would most likely include
a. Inquiry of management as to whether disagreements between the
predecessor auditor and the prospective client were resolved satisfactorily.
b. Consideration of whether sufficient competent evidential matter may be
obtained to afford a reasonable basis for an opinion.
c. Inquiry of third parties, such as the prospective client's bankers and
attorneys, about information regarding the prospective client and its
management.
d. Consideration of whether the internal control structure is sufficiently
effective to permit a reduction in the extent of required substantive tests.
5. Which of the following activities would usually be performed by the
manager in a public practice firm?
a. Deciding on the appropriate audit opinion
b. Liaising with the client with respect to the timing of audit work
Page 16 of 17 AT.106
 c. Performing detailed tests of transactions and balances
d. Meeting with clients and potential clients to discuss the firm’s services
6. Reviewing and coaching the work of less experienced team members
should be performed by ______ experienced engagement team members.
a. Less
b. More
c. Equally
d. None of the above
7. Within the context of quality control, the primary purpose of continuing
professional education and training activities is to enable a CPA firm to
provide its personnel with:
a. technical training that assures proficiency as a valuation expert.
b. professional education that is required in order to perform with due
professional care.
c. knowledge required to fulfill assigned responsibilities.
d. knowledge required to perform a peer review.
8. An engagement quality control review is normally done by the:
a. The engagement partner
b. The chief technical partner of the office conducting the audit
c. A partner not otherwise assigned to the engagement
d. The engagement manager
9. Written confirmation of compliance with relevant ethical requirements,
including independence, shall be obtained:
a. Annually c. Every two years
b. Every six months d. Every five years
10. Quality control policies for the acceptance and continuance of clients are
established to:
a. Enable the auditor to report on management’s integrity
b. Comply with standards established by regulatory bodies
c. Minimize the likelihood of associating with management that lack
integrity
d. Reduce exposure to litigation from failing to detect fraud
☺ - end- ☺

Page 17 of 17