CPA REVIEW SCHOOL OF THE PHILIPPINES AT-9302

Manila

AUDITING THEORY CPA Review

• PSQM 1 PHILIPPINE STANDARD ON QUALITY MANAGEMENT 1

Quality Management for Firms that Perform Audits or Reviews of Financial Statements,
or Other Assurance or Related Services Engagements

• PSQM 2 PHILIPPINE STANDARD ON QUALITY MANAGEMENT 2

Engagement Quality Reviews

• PSA 220 QUALITY MANAGEMENT FOR AN AUDIT OF FINANCIAL STATEMENTS

(Revised)

PSQM 1
Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or
Other Assurance or Related Services Engagements

1. This standard deals with a firm’s responsibilities to DESIGN, IMPLEMENT and OPERATE a
system of quality management for audits or reviews of financial statements, or other
assurance or related services.

2. The OBJECTIVE of the firm is to design, implement and operate a system of quality
management that provides the firm with reasonable assurance that:

a) The firm and its personnel fulfill their responsibilities in accordance with professional
standards and applicable legal and regulatory requirements, and conduct engagements in
accordance with such standards and requirements; and
b) Engagement reports issued by the firm or engagement partners are appropriate in the
circumstances.

3. A system of quality management addresses the following EIGHT COMPONENTS:

1) The firm’s risk assessment process;
2) Governance and leadership;
3) Relevant ethical requirements;
4) Acceptance and continuance of client relationships and specific engagements;
5) Engagement performance;
6) Resources;
7) Information and communication; and
8) The monitoring and remediation process.

1. The Firm’s Risk Assessment Process

The firm shall design and implement a risk assessment process to establish quality
objectives, identify and assess quality risks and design and implement responses to
address the quality risks.

2. Governance and leadership

The firm shall establish the following quality objectives that address the firm’s governance
and leadership, which establishes the environment that supports the system of quality
management:
a) The firm demonstrates a commitment to quality through a culture that exists
throughout the firm, which recognizes and reinforces:
i. The firm’s role in serving the public interest by consistently performing quality
engagements;
ii. The importance of professional ethics, values and attitudes;
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iii. The responsibility of all personnel for quality relating to the performance of
engagements or activities within the system of quality management, and their
expected behavior; and
iv. The importance of quality in the firm’s strategic decisions and actions, including
the firm’s financial and operational priorities.
b) Leadership is responsible and accountable for quality.
c) Leadership demonstrates a commitment to quality through their actions and
behaviors.
d) The organizational structure and assignment of roles, responsibilities and authority is
appropriate to enable the design, implementation and operation of the firm’s system
of quality management.
e) Resource needs, including financial resources, are planned for and resources are
obtained, allocated or assigned in a manner that is consistent with the firm’s
commitment to quality.

3. Relevant ethical requirements

The firm shall establish the following quality objectives that address the fulfillment of
responsibilities in accordance with relevant ethical requirements, including those related
to independence:
a) The firm and its personnel:
i. Understand the relevant ethical requirements to which the firm and the firm’s
engagements are subject; and
ii. Fulfill their responsibilities in relation to the relevant ethical requirements to which
the firm and the firm’s engagements are subject.
b) Others, including the network, network firms, individuals in the network or network
firms, or service providers, who are subject to the relevant ethical requirements to
which the firm and the firm’s engagements are subject:
i. Understand the relevant ethical requirements that apply to them; and
ii. Fulfill their responsibilities in relation to the relevant ethical requirements that
apply to them.

4. Acceptance and Continuance of Client relationships and Specific Engagements

The firm shall establish the following quality objectives that address the acceptance and
continuance of client relationships and specific engagements:
a) Judgments by the firm about whether to accept or continue a client relationship or
specific engagement are appropriate based on:
i. Information obtained about the nature and circumstances of the engagement and
the integrity and ethical values of the client (including management, and when
appropriate, those charged with governance) that is sufficient to support such
judgments; and
ii. The firm’s ability to perform the engagement in accordance with professional
standards and applicable legal and regulatory requirements.
b) The financial and operational priorities of the firm do not lead to inappropriate
judgments about whether to accept or continue a client relationship or specific
engagement.

5. Engagement Performance
The firm shall establish the following quality objectives that address the performance of
quality engagements:
a) Engagement teams understand and fulfill their responsibilities in connection with the
engagements.
b) The nature, timing and extent of direction and supervision of engagement teams and
review of the work performed is appropriate.
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c) Engagement teams exercise appropriate professional judgment and, when applicable

to the type of engagement, professional skepticism.
d) Consultation on difficult or contentious matters is undertaken.
e) Differences of opinion are brought to the attention of the firm and resolved.
f) Engagement documentation is assembled on a timely basis after the date of the
engagement report and is appropriately maintained and retained.

6. Resources
The firm shall establish the following quality objectives that address appropriately
obtaining, developing, using, maintaining, allocating and assigning resources in a timely
manner to enable the design, implementation and operation of the system of quality
management.

Human Resources
a) Personnel are hired, developed and retained and have the competence and capabilities
to:
i. Consistently perform quality engagements, including having knowledge or
experience relevant to the engagements the firm performs; or
ii. Perform activities or carry out responsibilities in relation to the operation of the
firm’s system of quality management.
b) Personnel demonstrate a commitment to quality through their actions and behaviors,
develop and maintain the appropriate competence to perform their roles.
c) Individuals are obtained from external sources (i.e., the network, another network
firm or a service provider) when the firm does not have sufficient or appropriate
personnel to enable the operation of firm’s system of quality management or
performance of engagements.
d) Engagement team members are assigned to each engagement, including an
engagement partner, who have appropriate competence and capabilities.
e) Individuals are assigned to perform activities within the system of quality management
who have appropriate competence and capabilities, including sufficient time, to
perform such activities.

Technological Resources
f) Appropriate technological resources are obtained or developed, implemented,
maintained, and used, to enable the operation of the firm’s system of quality
management and the performance of the engagements.

Intellectual Resources
g) Appropriate intellectual resources are obtained or developed, implemented,
maintained, and used, to enable the operation of the firm’s system of quality
management and the consistent performance of quality engagements.

Service Providers
h) Human, technological or intellectual resources from service providers are appropriate
for use in the firm’s system of quality management and in the performance of
engagements.

7. Information and Communication

The firm shall establish the following quality objectives that address obtaining, generating
or using information regarding the system of quality management, and communicating
information within the firm and to external parties on a timely basis to enable the design,
implementation and operation of the system of quality management:
a) The information system identifies, captures, processes and maintains relevant and
reliable information that supports the system of quality management.

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b) The culture of the firm recognizes and reinforces the responsibility of personnel to
exchange information within the firm and with one another.
c) Relevant and reliable information is exchanged throughout the firm and with
engagement teams.
d) Relevant and reliable information is communicated to external parties.

8. Monitoring and Remediation Process

The firm shall establish a monitoring and remediation process to:
a) Provide relevant, reliable and timely information about the design, implementation and
operation of the system of quality management.
b) Take appropriate actions to respond to identified deficiencies such that deficiencies
are remediated on a timely basis.

Designing and Performing Monitoring Activities

• The firm shall design and perform monitoring activities to provide a basis for the
identification of deficiencies.
• The firm shall include the inspection of completed engagements in its monitoring
activities and shall determine which engagements and engagement partners to select.

Evaluating Findings and Identifying Deficiencies

• The firm shall evaluate the findings to determine whether deficiencies exist, including
in the monitoring and remediation process.
• The firm shall evaluate the severity and pervasiveness of identified deficiencies.
• The firm shall design and implement remedial actions to address identified
deficiencies.

EVALUATING THE SYSTEM OF QUALITY MANAGEMENT

• The individual(s) assigned ultimate responsibility and accountability for the system of
quality management shall evaluate, on behalf of the firm, the system of quality
management. The evaluation shall be undertaken as of a point in time, and performed
at least annually.
• The firm shall undertake periodic performance evaluations of the individual(s) assigned
ultimate responsibility and accountability for the system of quality management, and the
individual(s) assigned operational responsibility for the system of quality management.

DOCUMENTATION
a) The firm shall prepare documentation of its system of quality management that is
sufficient to
• Support a consistent understanding of the system of quality management by
personnel.
• Support the consistent implementation and operation of the responses.
• Provide evidence of the design, implementation and operation of the responses.
b) The firm shall establish a period of time for the retention of documentation for the system
of quality management that is sufficient to enable the firm to monitor the design,
implementation and operation of the firm’s system of quality management, or for a longer
period if required by law or regulation.

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PSQM 2
Engagement Quality Reviews

1. ENGAGEMENT QUALITY REVIEW

An objective evaluation of the significant judgments made by the engagement team and the
conclusions reached thereon, performed by the engagement quality reviewer and completed
on or before the date of the engagement report.

2. PSQM 1 requires and engagement quality review for:

a) Audits of financial statements of listed entities;
b) Audits or other engagements for which an engagement quality review is required by law
or regulation;
c) Audits or other engagements for which the firm determines that an engagement quality
review is an appropriate response to address one or more quality risk(s).

3. PSQM 2 deals with:

a) The appointment and eligibility of the engagement quality reviewer; and
b) The engagement quality reviewer’s responsibilities relating to the performance and
documentation of an engagement quality review.

4. The performance of an engagement quality review is undertaken at the engagement level by

the engagement quality reviewer on behalf of the firm.

5. The firm shall establish policies or procedures that set forth the criteria for eligibility to be
appointed as an engagement quality reviewer. Those policies or procedures shall require that
the engagement quality reviewer not be a member of the engagement team, and:
a) Has the competence and capabilities, including sufficient time, and the appropriate
authority to perform he engagement quality review;
b) Complies with relevant ethical requirements;
c) Complies with provisions of law and regulation, if any, that are relevant to the eligibility
of the engagement quality reviewer.

6. In performing the engagement quality review, the engagement quality reviewer shall:
a) Read, and obtain an understanding of, information communicated by:
i. The engagement team regarding the nature and circumstances of the engagement
and the entity; and
ii. The firm related to the firm’s monitoring and remediation process, in particular
identified deficiencies that may relate to, or affect, the areas involving significant
judgments made by the engagement team.
b) Discuss with the engagement partner and, if applicable, other members of the
engagement team, significant matters and significant judgments made in planning,
performing and reporting on the engagement.
c) Based on the information obtained in (a) and (b), review selected engagement
documentation relating to the significant judgments made by the engagement team.
d) For audits of financial statements, evaluate the basis for the engagement partner’s
determination that relevant ethical requirements relating to independence have been
fulfilled.
e) Evaluate whether appropriate consultation has taken place on difficult or contentious
matters or matters involving differences of opinion and the conclusions arising from those
consultations.
f) For audits of financial statements, evaluate the basis for the engagement partner’s
determination that the engagement partner’s involvement has been sufficient and
appropriate throughout the audit engagement such that the engagement partner has the

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basis for determining that the significant judgments made and the conclusions reached
are appropriate given the nature and circumstances of the engagement.
g) Review:
i. For audits of financial statements, the financial statements and the auditor’s report
thereon, including, if applicable, the description of the key audit matters.
ii. For review engagements, the financial statements or financial information and the
engagement report thereon.
iii. For other assurance and related services engagements, the engagement report, and
when applicable, the subject matter information.

7. The engagement quality reviewer shall notify the engagement partner if the engagement
quality reviewer has concerns that the significant judgments made by the engagement team,
or the conclusions reached thereon, are not appropriate.

8. Completion of the Engagement Quality Review

The engagement quality reviewer shall determine whether the requirements of PSQM 2 with
respect to the performance of the engagement quality review have been fulfilled, and whether
the engagement quality review is complete. If so, the engagement quality reviewer shall
notify the engagement partner that the engagement quality review is complete.

8. Documentation

• The firm shall establish policies and procedures that require the engagement quality
reviewer to take responsibility for documentation of the engagement quality review.
• The engagement quality reviewer shall determine that the documentation of the
engagement quality review includes:
a) The names of the engagement quality reviewer and individuals who assisted with the
engagement quality reviewer;
b) An identification of the engagement documentation reviewed.
c) The basis for the engagement quality reviewer’s determination whether the
requirements of PSQM 2 with respect to the performance of the engagement quality
review have been fulfilled, and whether the engagement quality review is complete.
d) The date of completion of the engagement quality review.

PSA 220 (Revised)

Quality Management for an Audit of Financial Statements

1. This PSA deals with the specific responsibilities of the auditor regarding quality management
at the engagement level for an audit of financial statements, and the related responsibilities
of the engagement partner.

2. The engagement partner remains ultimately responsible, and therefore accountable, for
compliance with the requirements of this PSA.

3. The objective of the auditor is to manage quality at the engagement level to obtain reasonable
assurance that quality has been achieved such that:
a) The auditor has fulfilled the auditor’s responsibilities, and has conducted the audit, in
accordance with professional standards and applicable legal and regulatory requirements;
and
b) The auditor’s report issued is appropriate in the circumstances.

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Requirements

Leadership Responsibilities for Managing and Achieving Quality on Audits

• The engagement partner shall take overall responsibility for managing and achieving quality
on the audit engagement, including taking responsibility for creating an environment for the
engagement that emphasizes the firm’s culture and expected behavior of engagement team
members.

Relevant Ethical Requirements, Including Those Related to Independence

• The engagement partner shall have an understanding of the relevant ethical requirements,
including those related to independence, that are applicable given the nature and
circumstances of the audit engagement.
• If matters come to the engagement partner’s attention that indicate that a threat to
compliance with relevant ethical requirements exists, the engagement partner shall evaluate
the threat and take appropriate action.
• The engagement partner shall remain alert throughout the audit engagement for breaches of
relevant ethical requirements or the firm’s related policies or procedures by members of the
engagement team.
• Prior to dating the auditor’s report, the engagement partner shall take responsibility for
determining whether relevant ethical requirements, including those related to independence,
have been fulfilled.

Acceptance and Continuance of Client Relationships and Audit Engagements

• The engagement partner shall determine that the firm’s policies or procedures for the
acceptance and continuance of client relationships and audit engagements have been
followed, and that conclusions reached in this regard are appropriate.
• If the engagement team becomes aware of information that may have caused the firm to
decline the audit engagement had that information been known by the firm prior to accepting
or continuing the client relationship or specific engagement, the engagement partner shall
communicate that information promptly to the firm, so that the firm and the engagement
partner can take the necessary action.

Engagement Resources
• The engagement partner shall determine that sufficient and appropriate resources to perform
the engagement are assigned or made available to the engagement team in a timely manner.
• The engagement partner shall determine that members of the engagement team, and any
auditor’s external experts and internal auditors who provide direct assistance who are not
part of the engagement team, collectively have the appropriate competence and capabilities,
including sufficient time, to perform the audit engagement.
• The engagement partner shall take responsibility for using the resources assigned or made
available to the engagement team appropriately, given the nature and circumstances fo the
audit engagement.

Engagement Performance

Direction, Supervision and Review

• The engagement partner shall take responsibility for the direction and supervision of the
members of the engagement team and review of their work.
• The engagement partner shall review audit documentation at appropriate points in time
during the audit engagement, including audit documentation relating to:
a) Significant matters;
b) Significant judgments, including those relating to contentious matters identified during the
audit engagement, and the conclusions reached; and
c) Other matters that, in the engagement partner’s professional judgment, are relevant to
the engagement partner’s responsibilities.
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Consultation
• The engagement partner shall:
a) Take responsibility for the engagement team undertaking consultation on:
i. Difficult or contentious matters and matters on which the firm’s policies or procedures
require consultation; and
ii. Other matters that, in the engagement partner’s professional judgment, require
consultation;
b) Determine that members of the engagement team have undertaken appropriate
consultation during the audit engagement.
c) Determine that the nature and scope of, and conclusions resulting from, such
consultations are agreed with the party consulted; and
d) Determine that conclusions agreed have been implemented.

Engagement Quality Review

• For audit engagements for which an engagement quality review is required, the engagement
partner shall:
a) Determine that an engagement quality reviewer has been appointed;
b) Cooperate with the engagement quality reviewer and inform other members of the
engagement team of their responsibility to do so;
c) Discuss significant matters and significant judgments arising during the audit engagement,
including those identified during the engagement quality review, with the engagement
quality reviewer; and
d) Not date the auditor’s report until the completion of the engagement quality review.

Monitoring and Remediation

• The engagement partner shall take responsibility for:
a) Obtaining an understanding of information from the firm’s monitoring and remediation
process, as communicated by the firm including, as applicable, the information from the
monitoring and remediation process of the network and across the network firms.
b) Determining the relevance and effect on the audit engagement of the information referred
to in (a) and take appropriate action; and
c) Remaining alert throughout the audit engagement for information that may be relevant
to the firm’s monitoring and remediation process and communicate such information to
those responsible for the process.

Documentation
• The auditor shall include in the audit documentation:
a) Matters identified, relevant discussions with personnel, and conclusions reached with
respect to:
i. Fulfillment of responsibilities relating to relevant ethical requirements, including those
related to independence.
ii. The acceptance and continuance of the client relationship and audit engagement.
b) The nature and scope of, and conclusions resulting from, consultations undertaken during
the audit engagement and how such conclusions were implemented.
c) If the audit engagement is subject to an engagement quality review, that the engagement
quality review has been completed on or before the date of the auditor’s report.

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MULTIPLE CHOICE QUESTIONS

1. A firm should design, implement and operate a system of quality management that provides
the firm with reasonable assurance that:
A. The firm and its personnel fulfill their responsibilities in accordance with professional
standards and applicable legal and regulatory requirements, and conduct engagements in
accordance with such standards and requirements.
B. Engagement reports issued by the firm or engagement partners are appropriate in the
circumstances.
C. Both A and B.
D. Neither A nor B.

2. A system of quality management addresses which of the following components?

A. Considering audit risk and materiality.
B. Obtaining, developing, using, maintaining, allocating and assigning resources.
C. Using statistical sampling techniques.
D. Complying with laws and regulations.

3. PSQM 1 applies to all firms that perform:

A. Audits of financial statements only.
A. Reviews of financial statements only.
B. Other assurance or related services engagements only.
C. Audits or reviews of financial statements, or other assurance or related services
engagements.

4. PSQM 1 requires CPA firms to apply a risk-based approach in designing, implementing and
operating the components of the system of quality management. This approach is embedded
in the requirements of PSQM 1 through:
A. Establishing quality objectives.
B. Identifying and assessing risks to the achievement of the quality objectives.
C. Designing and implementing responses to address the quality risks.
D. All of the above.

5. The partner or other individual, appointed by the firm, who is responsible for the engagement
and its performance, and for the report that is issued on behalf of the firm is the _________.
A. Engagement partner.
B. Engagement quality reviewer.
C. Team leader.
D. Managing partner.

6. The firm’s system of quality management should include policies and procedures that address
each of the following components, except
A. Governance and leadership.
B. Control environment.
C. Relevant ethical requirements.
D. Information and communication.

7. The requirement to promote a culture of quality is most closely associated with which of the
following quality management components?
A. Engagement performance.
B. Relevant ethical requirements.
C. Governance and leadership.
D. Monitoring and remediation process.

8. In pursuing a CPA firm’s quality management objectives, a CPA firm may maintain records
indicating which partners or staff of the CPA firm were previously employed by the CPA firm’s
clients. Which quality management component is this procedure most likely to satisfy?
A. Supervision. C. Experience requirements.
B. Professional relationship. D. Relevant ethical requirements.

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9. The firm shall establish policies and procedures designed to provide it with reasonable
assurance that the firm and its personnel comply with relevant ethical requirements. The
Code of Ethics for Professional Accountants in the Philippines establishes the fundamental
principles of professional ethics which include the following, except
A. Integrity C. Relevance
B. Objectivity D. Professional behavior

10. A CPA establishes quality management policies and procedures for deciding whether to accept
a new client or continue to perform services to a current client. One purpose for establishing
such policies and procedures is
A. To enable the auditor to attest to the reliability of the client.
B. To satisfy the CPA firm’s duty to the public concerning the acceptance of new clients.
C. To provide reasonable assurance that the integrity of the client is considered.
D. To anticipate before performing any field work whether an unmodified opinion can be
expressed.

11. The firm’s ______________ sets out the process the firm is required to follow in implementing
a risk-based approach across the system of quality management.
A. Governance and leadership.
B. Information and communication.
C. Risk assessment process.
D. Monitoring and remediation process.

12. A ___________ is a risk that has a reasonable possibility of occurring and individually, or in
combination with other risks, adversely affecting the achievement of one or more quality
objectives.
A. Quality risk.
B. Business risk.
C. Information risk.
D. Deficiency.

13. ____________ are the desired outcomes in relation to the components of the system of
quality management to be achieved by the firm.
A. Quality risks.
B. Deficiencies.
C. Quality objectives.
D. Quality procedures.

14. In connection with the human resources component, a CPA firm’s system of quality
management should ordinarily provide that all personnel
A. Participate in professional development activities that enable them to fulfill responsibilities
assigned.
B. Possess judgment, motivation, and adequate experience.
C. Seek assistance from persons having appropriate levels of knowledge, judgment, and
authority.
D. Demonstrate compliance with independence policies.

15. In pursuing its quality management objective with respect to assigning personnel to
engagements, a CPA firm may use policies and procedures such as
A. Rotating employees from assignment to assignment on a random basis to aid in the staff
training effort.
B. Requiring timely identification of the staffing requirements of specific engagements so
that enough qualified personnel can be made available.
C. Allowing staff to select the assignments of their choice to promote better client
relationships.
D. 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.

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16. A requirement that working papers be reviewed by the senior auditor, and any deficiencies
be discussed with the preparer is an example of a quality management procedure in the area
of
A. Engagement performance.
B. Monitoring.
C. Human resources.
D. Leadership responsibility for quality within the firm.

17. The engagement partner should take responsibility for the direction, supervision, and
performance of the audit engagement in compliance with professional standards and
regulatory and legal requirements, and for the auditor’s report that is issued to be appropriate
in the circumstances. Supervision includes the following, except
A. Tracking the progress of the audit engagement.
B. Addressing significant issues arising during the audit engagement, considering their
significance, and modifying the planned approach appropriately.
C. Informing the members of the engagement team of their responsibilities.
D. Identifying matters for consultation or consideration by more experienced engagement
team members during the audit engagement.

18. For audits of financial statements of listed entities, the engagement partner should not issue
the auditor’s report until the completion of the
A. Management Review C. Engagement Partner Review
B. Engagement Team Review D. Engagement Quality Review

19. The statement, “Quality management policies and procedures should be relevant, adequate,
effective, and complied with.” is most closely associated with what quality management
component?
A. Engagement performance
B. Governance and leadership
C. Monitoring
D. Relevant ethical requirements

20. A process comprising an ongoing consideration and evaluation of the firm’s system of quality
management including a periodic inspection of a selection of completed engagements
designed to provide the firm with reasonable assurance that its system of quality management
is operating effectively refers to what quality management element?
A. Internal control.
B. Acceptance and continuance of client relationships and specific engagements.
C. Monitoring.
D. Human resources.

21. Which component of a system of quality management is addressed by the establishment of

policies and procedures designed to provide the firm with reasonable assurance that it has
sufficient personnel with the competence, capabilities, and commitment to ethical principles?
A. Information and communication
B. Governance and leadership
C. Human resources
D. Engagement performance

22. The following are essential components of a system of quality management except
A. Policies and procedures that ensure that monitoring activities are effectively applied.
B. Policies and procedures to ensure that firm personnel are actively engaged in marketing
strategies.
C. Policies and procedures to ensure that the work performed by firm personnel meet
applicable professional standards.
D. Policies to ensure that personnel maintain their independence when performing assurance
services.

23. The least important component in the evaluation of a CPA firm’s system of quality
management would concern its policies and procedures with respect to
A. Assigning personnel to engagement.

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B. Employment (hiring).
C. Confidentiality of audit engagements.
D. Determination of audit fees.

24. An audit firm should implement quality management policies and procedures designed to
ensure that all audits are conducted in accordance with PSAs 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.

25. Who should take responsibility for the overall quality on each audit engagement?
A. Engagement partner C. CPA firm
B. Engagement team D. Engagement quality reviewer

26. The implementation of quality management procedures that are applicable to the individual
audit engagement is the responsibility of the
A. CPA firm
B. Engagement quality control reviewer
C. Engagement team
D. Expert contracted by the firm in connection with the audit engagement

27. 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 charged 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.
A. I only C. II and III only
B. I and II only D. I, II, and III

28. For audits of financial statements of listed entities, the engagement partner should
A. Determine that an engagement quality reviewer has been appointed.
B. Discuss significant matters arising during the audit engagement, including those identified
during the engagement quality review, with the engagement quality reviewer.
C. Not issue the auditor’s report until the completion of the engagement quality review.
D. All of the above

29. Typically, an external auditor first gets supervisory experience at what level of authority?
A. Senior. C. Manager.
B. Supervisor. D. Partner.

30. The audit work performed by each assistant should be reviewed by personnel of at least equal
competence to determine whether it was adequately performed and to evaluate whether the
A. Firm’s system of quality management has been maintained at a high level.
B. Work performed and the results obtained have been adequately documented.
C. Audit procedures performed are approved in the professional standards.
D. Audit procedures performed are in accordance with Philippine Standards on Auditing
(PSAs).

31. 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.

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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.

32. Which of the following quality objectives addresses the engagement performance component
of a system of quality management?
A. Consultation on difficult or contentious matters is undertaken and the conclusions agreed
are implemented.
B. Personnel are hired, developed and retained and have the competence and capabilities to
consistently perform quality engagements.
C. Appropriate technological resources are obtained or developed, implemented, maintained,
and used, to enable the operation of the firm’s system of quality management and the
performance of engagements.
D. The culture of the firm recognizes and reinforces the responsibility of personnel toe
exchange information with the firm and with one another.

33. A firm’s system of quality management should ordinarily provide for the maintenance of
A. A file of minutes of staff meetings.
B. Updated personnel files.
C. Documentation of its system of quality management that is sufficient to support a
consistent understanding of the system of quality management by personnel.
D. Documentation to demonstrate compliance with regulatory requirements.

34. The firm shall obtain written confirmation of compliance with its policies and procedures on
independence from all firm personnel required to be independent by relevant ethical
requirements
A. At least annually
B. At least monthly
C. At least semi-annually
D. At the completion of each engagement

35. Under PSQM 1, an appropriate time limit within which to complete the assembly of the final
engagement file is ordinarily _______________ after the date of the engagement report.
A. not more than 60 days
B. not more than 30 days
C. not more than 10 days
D. not more than 5 days.

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