1.

By obtaining confirmation and taking appropriate action on information indicating

noncompliance, the firm demonstrate the importance that it attaches to
independence and makes the issue current, and visible to, its personnel. Written
confirmation:
May be in paper format only
May be in paper form or electronic form.
May be in electronic format only
Is not required since oral confirmation will suffice per PSQC1.
2. Engagement supervisor includes:

Tracking the progress of the engagement.

Considering the capabilities and the competence of individual members of client

personnel.

Identifying matters for consultation or considering by less experienced

engagement team members during the engagement.

Addressing all issues arising during the engagement and modifying the planned
approach appropriately.

3. The inspection of a selection of completed engagements is ordinarily performed

on a cyclical basis. Engagements is selected for the inspection include at least:

Two engagement for each firm over an inspection cycle.

Two engagement for each engagement partner over an inspection cycle.

One engagement for each engagement partner over an inspection cycle.

One engagement for each firm over an inspection cycle.

4. Quality control policies and procedures should provide the firm with reasonable
assurance that the policies and procedures relating to the other elements of
quality control are being effectively applied. This statement defines the quality
control element of

Acceptance and continuance of client relationships and specific engagements.

Monitoring.

Leadership responsibility for quality within the firm.

 Ethical requirements.

5. A CPA firm’s quality control procedures pertaining to the acceptance of a

prospective audit client would most likely include

Consideration of whether internal control is sufficiently effective to permit a

reduction in the extent of required substantive tests.

Inquiry of management as to whether disagreements between the predecessor

auditor and the prospective client were resolved satisfactorily.

Inquiry of third parties, such as the prospective client’s bankers and

attorneys, about information regarding the prospective client and its
management.

Consideration of whether sufficient appropriate evidential matter may be obtained

to afford a reasonable basis for an opinion.

6. According to PSQC 1, the firm should establish policies and procedures to

provide it with reasonable assurance that the policies and procedures relating to
the system of quality control are relevant, adequate, operating effectively and
complied with in practice. Such policies and procedures should include an
ongoing consideration and evaluation of the firm’s system of quality control,
including a periodic inspection of a selection of completed engagements is
ordinarily performed on a cyclical basis. Engagements selected for inspection
include.

At least 3 engagement for each engagement partner over an inspection cycle,

which ordinarily spans no more than 5 years

At least one engagement for each engagement partner over an inspection

cycle, which ordinarily spans no more than 3 years.

At least one engagement for each engagement partner over an inspection cycle,
which ordinarily spans no more than 1 year.

At least one engagement for each engagement partner over an inspection cycle,
which ordinarily spans no more than 2 years.

7. The audit performed by each assistant should be reviewed to determine whether

it was adequately performed and to evaluate whether the
 Results are consistent with the conclusions to be presented in the
auditor’s report.

Audit procedures performed are approved in the professional standards.

Audit has been performed by persons having adequate technical training and
proficiency as auditors.

Auditor’s system of quality control has been maintained at a high level.

8. An auditor’s document includes the following:

“We will conduct our audit in accordance with Philippine Standards on Auditing.
Those standards require that we comply with ethical requirements and plan and
performed the audit to obtain reasonable assurance whether the financial
statements are free from material misstatement.”
The above passage is most likely from a/an

Management representation letter.

Emphasis-of-matter paragraph of a “subject to” qualified auditor’s report.

Engagement letter.

Letter of acceptance

9. An Auditor who, before the completion of the engagement, is requested to

change the engagement tone which provides a lower level of assurance, should

Withdraw and consider whether there is any obligation to report to other parties
the circumstances necessitating the withdrawal.

Consider the change reasonable if it relates to information that is incorrect,

incomplete or otherwise unsatisfactorily.

Issue a report that includes reference to the original engagement and any
procedures that may have been perform in the original engagement.

Not agree to a change of engagement where there is no reasonable

justification for doing so.

10. For audits of financial statements of listed entities, the engagement partner
should
 Determine that an engagement quality control reviewer has been appointed.

All of these choices

Not issue the auditor’s report until the completion of the engagement quality
control review.

Discuss significant matters arising during the audit engagement, including those
identified during the engagement quality control review, with the engagement
quality reviewer.

11. As defined in PSQC 1, it is a process designed to provide an objective

evaluation, before the report issued, of the significant judgements the
engagement team made and the conclusions they reached in formulating the
report.

Continuing professional education.

Engagement quality control review.

Monitoring.

Engagement performance.

12. ABC Company has just completed its annual independence review. Gerry the
partner incharge for the independence is reviewing a completed copy of the
independence declaration from and notice that Miss Rita an audit manager
declared that his husband was newly hired as a controller of a company where
Miss Rita is the engagement manager. As partner in-charge for independence
what is the best course of action to take in the situation?

Assigned an engagement quality control reviewer to ensure that all judgement by

Miss Rita are reviewed and ensure she remains objective.

Transfer Miss Rita to another engagement to reduce risk of non-

compliance with the independence requirement.

Discuss the matter with Miss Rita and the engagement partner and ensure that
all work done by Miss Rita are properly reviewed by the engagement partner.
 Discuss the matter with management and those charged with governance and if
they agree to continue with Miss Rita as audit manager, then should continue
managing the engagement.

13. Anthony and Company is a firm of certified Public Accountant which has two
partners, Anthony and Hooper. In the current year the firm celebrated its 5 th in
practice. Two partners, has a system of quality control from the beginning which
has ensured that each audit is conducted satisfactorily. However the partners
have never monitored the functioning of the quality control system. Is the firm
require to implement policies and procedures in monitoring completed
engagement?

No, PSQC 1 does not require monitoring within the firm, since the firm is required
to renew its accreditation with BOA once every three years.

Yes, but since the firm is composed only two partners, they can perform the
monitoring once every 5 years.

Yes, PSQC 1 requires that the firm must have policies and procedures in
monitoring its quality control policies and procedures.

No, since the firm is small practice and PSQC 1 does not require monitoring for
mall practice.

14. John and Co. is a firm of a certified public accountants. One of the parties, Mr.
Grant has instructed a senior director, Collin to conduct inspection (cold review)
of two past audits; MPA Corporation and DPA Corporation. Collin was one of the
team members of the MPA engagement team. He had also assisted one of the
partners in performing the hot review. If you are Collin would you conduct the
inspection?

Yes, PSQC 1 did not mention any prohibition relating to members of the
engagement team conducting inspection.

No, Collin should not conduct the inspection of these engagements ass he
has been associated with them is some manner.

No, Collin does not have the necessary competence as he is only a director,
inspection must be performed by an audit partner.

Yes, as Collin is a better position to conduct the inspection, because of his

previous experience with the engagements.
15. This refers to the development of a general strategy and detailed approach for
the expected nature, timing and extent of audit refers to:
.

Supervision

Pre-engagement

Direction

Audit planning

16. The outputs of auditing are:

Audit programs, tailored as needed to reflect the particular engagement

circumstances

A detailed audit plan containing the nature, extent and timing of risk assessment
procedures and planned further audit procedures at the assertion level

All of these choices

An overall audit strategy that sets out the direction, scope and focus of the audit
team’s efforts

17. The audit plan contains the nature, extent and timing of procedures for gathering
evidence. Regarding audit procedures, which of the following best describe risk
assessment procedures?
.
All of these statements describe risk assessment procedures

This category of procedures is used to test the operating effectiveness of controls

in preventing, or detecting and correcting, material misstatements at the
assertion level

This category of procedures is used to detect material misstatements at the

assertion level
 This category of procedures is used to obtain an understanding of the
entity and its environment, including its internal control, to assess the risks
of material misstatement at the financial statement and assertion levels.

18. The extent of planning will vary according to the following:

All of these affect the extent of planning

Size of the audit client

The nature and complexity of the audit engagement

Auditor’s experience with the entity and knowledge of the business

19. An auditor obtains an understanding of the entity and its environment in order to:

Make constructive suggestions concerning improvements to the client’s internal

control

Evaluate whether the aggregation of known misstatements causes the financial

statements taken as a whole to be materially misstated

Develop an attitude of professional skepticism concerning management’s

financial statement assertions

Understand the events and transactions that may leave have an effect on
the client’s financial statements

20. Religious Corp. has a few large accounts receivables that total P1,000,000.
Pligrim Corp. has a large number of small accounts receivable that also total
P1,000,000. The importance of an error in any one account is, therefore, greater
for religious Corp. than the Pilgrim Corp. This is an example of the auditor’s
concept of:

Relative risk

Comparative analysis

Materiality

Reasonable assurance
21. When the auditors allocate the preliminary judgement about materiality to
conduct balances, the materiality allocated to any given account balance is
referred to as:

The materiality range

Tolerable materiality

The error range

Tolerable misstatement

22. Regardless of how the allocation of the preliminary judgement about materiality
was done, when the audit is complete the auditor must be confident that the
combined errors in all accounts are

Less than the preliminary judgment

Less than or equal to the preliminary judgment

More than the preliminary judgment

Equal to the preliminary judgment

23. The relationship between materiality and audit risk is:

Indeterminable

None of these

Inverse

Direct

24. When setting a preliminary judgement about materiality

.

Less evidence is required for a low peso amount than for a high peso amount

More evidence is required for a low peso amount than for a high peso
amount

There is no relationship between it and the peso amount of evidence needed

 The same amount of evidence is required for either low or high peso amounts

25. These are events or conditions that provide an opportunity, a motive or a means
to commit fraud, or indicate that fraud may already have occurred
.

Risk of material misstatement

Fraud risk factors or red flags

Audit risk

Fraud indications

26. Which of the following characteristics most likely would heighten an auditor’s
concern about the risk of intentional manipulation of financial statements?

Management places substantial emphasis on meeting earnings projections

Turnover of senior accounting personnel is low

Insiders recently purchased additional shares of the entity’s stock

The rate of change in the entity’s industry is slow

27. Analytical procedures used in planning should focus on:

Testing individual account balances that depend on accounting estimates

Identifying material weaknesses in the control structure.

Evaluating the adequacy of evidence gathered concerning unusual balances.

Enhancing the auditor’s understanding of the client’s business.

28. The objective of performing analytical procedures in planning an audit

engagement is to identify the existence of:

Recorded transactions that were not properly authorized

Related party transactions.

 Illegal acts that went undetected because of internal control weaknesses.

Unusual transactions and events

29. The element of the audit planning process most likely to be agreed upon with
the client before implementation of the audit strategy is the determination of the

Evidence to be gathered to provide a sufficient basis for the auditor’s opinion.

Timing of inventory observation procedures to be performed.

Procedures to be undertaken to discover litigation, claims, and assessments.

Pending legal matters to be included in the inquiry of the client’s attorney

30. Which of the following is not typically included in initial audit planning?

Client acceptance/continuation decisions.

Perform analytical procedures as substantive tests.

Obtain an understanding with the client

Determination of the purpose of the audit.