No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

QUALITY CONTROL FOR AUDIT & ASSURANCE FIRMS

MULTIPLE CHOICE QUESTIONS

1. This refers to the policies and procedures adopted by a firm to provide it with reasonable
assurance regarding compliance with professional standards and regulatory and legal
requirements and appropriateness of reports issued by the firm.

A. Internal controls
B. Control environment
C. Quality controls
D. Assurance standards

2. The nature, timing and extent of an audit firm’s quality control policies and procedures
depend on

The Nature of the CPA Appropriate Cost-

The CPA Firm’s Size
Firm’s Practice Benefit Considerations
A. Yes Yes No
B. Yes Yes Yes
C. No Yes No
D. Yes No Yes

3. The firm shall establish and maintain a system of quality control that includes policies and
procedures the following elements, except

A. Leadership responsibilities for quality within the firm

B. Relevant ethical requirements
C. Acceptance and continuance of client relationships and specific engagements
D. None of the above.

4. 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?
Human Resources Monitoring Engagement Performance
A. Yes Yes No
B. Yes Yes Yes
C. No Yes Yes
D. Yes No Yes

5. The firm shall establish policies and procedures designed to promote an internal culture
recognizing that quality is essential in performing engagements. The firm’s leadership
includes the following:

Managing board of
Chief executive officer Chief financial officer
partners
A. Yes Yes Yes
B. Yes Yes No
C. Yes No Yes
D. No Yes Yes

6. Actions and messages that encourage a culture that recognizes and rewards high quality
work may be communicated through

A. Training seminars, meetings, formal or informal dialogue

B. Mission statements, newsletters, or briefing memoranda
C. Internal documentation and training materials, and in partner and staff appraisal
procedure
D. All of the above

1P a g e JABELLAR/AJABINAL/RBERCASIO/JMAGLINAO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

7. The firm’s independence policies and procedures shall require

A. Engagement partners to provide the firm with relevant information about client
engagements
B. Personnel to promptly notify the firm of circumstances and relationships that create a
threat to independence
C. Accumulation and communication of relevant information to appropriate personnel to
maintain its compliance with independence requirements
D. All of the above.

8. The rotation of the engagement partner and the individuals responsible for engagement
quality control review, and, where applicable, others subject to rotation requirements, after
a specified period is required for

A. Audits of financial statements of listed entities

B. Audits of financial statements of public interest entities (PIE)
C. Both A and B
D. Neither A nor B

9. The firm shall establish policies and procedures for the acceptance and continuance of
client relationships and specific engagements, designed to provide the firm with
reasonable assurance that it will only undertake or continue relationships and
engagements where the firm has established the following, except

A. Is competent and capable to perform the engagement

B. Can comply with relevant ethical requirements
C. Has considered the integrity of the client, and does have information that would lead
it to conclude that the client lacks integrity
D. None of the above.

10. A firm obtained information that would have caused it to decline an engagement had the
information been available earlier. Actions available to the auditor include the following,
except

A. Report the information and its implications to the person(s) who appointed the CPA
B. Withdraw from the engagement
C. Withdraw from both the engagement and the client relationship
D. Continue the engagement as it would be unethical to withdraw from engagements
which have already started

11. A CPA firm should establish procedures for conducting and supervising work at all
organizational levels to provide reasonable assurance that the work performed meets the
firm’s standards of quality. To achieve this goal, the firm most likely would establish
procedures for
A. Evaluating prospective and continuing client relationships.
B. Reviewing engagement working papers and reports.
C. Requiring personnel to adhere to the applicable independence rules.
D. Maintaining personnel files containing documentation related to the evaluation o
personnel.

12. The following must be observed when assigning engagement teams

A. The identity and role of the engagement partner are communicated to the network firm
B. The engagement partner has the appropriate competence, capabilities, and authority
to perform the role
C. The responsibilities of the engagement partner are clearly defined and communicated
to regulatory authorities
D. All of the above

2P a g e JABELLAR/AJABINAL/RBERCASIO/JMAGLINAO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

13. Performance evaluation, compensation and promotion procedures give due recognition
and reward to the development and maintenance of competence and commitment to
ethical principles. Steps a firm may take in developing and maintaining competence and
commitment to ethical principles include

A. Making personnel aware of the firm’s expectations regarding performance and ethical
principles
B. Providing personnel with evaluation of, and counseling on, performance, progress and
career development
C. Helping personnel understand that advancement to positions of greater responsibility
depends, among other things, upon performance quality and adherence to ethical
principles, and that failure to comply with the firm’s policies and procedures may result
in disciplinary action
D. All of the above

14. The firm’s review responsibility policies and procedures shall be determined on the basis
that

A. All audit documentation must be reviewed by the engagement partner

B. Technical consultation must be conducted for auditing and accounting matters faced
by the engagement team
C. Work of less experienced team members is reviewed by more experienced
engagement team members
D. The engagement quality control process must be finalized before the assurance report
is issue

15. The audit work performed by each assistant should be reviewed to determine whether it
was adequately performed and to evaluate whether the

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

B. Results are consistent with the conclusions to be presented in the auditor’s report.
C. Audit procedures performed are approved in the professional standards.
D. Audit has been performed by persons having adequate technical training and
proficiency as auditors.

16. Who should take responsibility for the overall quality of each engagement?

A. Engagement quality control reviewer

B. Engagement partner
C. Engagement team
D. Technical review committee

17. 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 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 engagements, significant risks,
and other areas the engagement partner considers important

3P a g e JABELLAR/AJABINAL/RBERCASIO/JMAGLINAO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

18. For audits of financial statements of listed entities, the engagement partner should

A. Determine that an engagement quality control reviewer has been appointed.

B. Discuss significant matters arising during the audit engagement, including those
identified during the engagement quality control review, with the engagement quality
reviewer.
C. Not issue the auditor’s report until the completion of the engagement quality control
review.
D. All of the above.

19. Which of the following appropriately relates to firm’s consultation requirements?

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, scope and conclusions from consultations are documented and are
agreed by both the individual seeking consultation and the individual consulted
D. All of the above.

20. In a certain audit engagement, several key members of the engagement team had
differences of opinion regarding a certain matter. In this case:

A. The engagement partner shall issue a disclaimer of opinion due to a scope limitation
B. an increase in the audit fee will be requested due to the extension of the time required
to complete the engagement
C. Documentation will be made regarding the unresolved matter, and the auditor will
withdraw from the engagement altogether
D. The report shall not be issued until the matter is resolved

21. This is a review that provides an objective evaluation of the significant judgments made
by the engagement team and the conclusions reached in formulating the report

A. Engagement quality control review

B. System of quality control
C. Technical review process
D. Assurance practice evaluation

22. A process that includes an ongoing consideration and evaluation of the firm’s system of
quality control including, on a cyclical basis, inspection of completed engagements,
designed to enable the firm to obtain reasonable assurance that its system of quality
control is operating effectively

A. Inspection
B. Quality assurance review
C. Monitoring
D. Quality milestone checks

23. According to PSQC 1, a 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
A. At least one engagement for each engagement partner over an inspection cycle, which
ordinarily spans no more than 2 years.
B. At least one engagement for each engagement partner over an inspection cycle, which
ordinarily spans no more than 1 year.
C. At least 3 engagement for each engagement partner over an inspection cycle, which
ordinarily spans no more than 5 years
D. At least one engagement for each engagement partner over an inspection cycle, which
ordinarily spans no more than 3 years.

4P a g e JABELLAR/AJABINAL/RBERCASIO/JMAGLINAO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

24. Under PSQC 1, the firm should communicate the results of the monitoring of its quality
control system to engagement partners and other appropriate individuals within the firm
at least
A. Monthly
B. Weekly
C. Quarterly
D. Annually

25. A firm’s system of quality control should ordinarily provide for the maintenance of
A. A file of minutes of staff meetings.
B. Updated personnel files.
C. Documentation to provide evidence of the operation of each element of its system of
quality control.
D. Documentation to demonstrate compliance with regulatory requirements.

Key Learnings

PSQC 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and
Related Services Engagements
PSA 220, Quality Control for an Audit of Financial Statements

 This International Standard on Quality Control (ISQC) deals with a firm’s responsibilities for its system of
quality control for audits and reviews of financial statements, and other assurance and related services
engagements. This ISQC is to be read in conjunction with relevant ethical requirements.
 The objective of the firm is to establish and maintain a system of quality control to provide it with reasonable
assurance that:
a. The firm and its personnel comply with professional standards and applicable legal and regulatory
requirements; and
b. Reports issued by the firm or engagement partners are appropriate in the circumstances.
 The firm shall establish and maintain a system of quality control that includes policies and procedures that
address each of the following elements:
 Leadership responsibilities for quality within the firm.
 Relevant ethical requirements.
 Acceptance and continuance of client relationships and specific engagements.
 Human resources.
 Engagement performance.
 Monitoring.

Leadership Responsibilities for Quality within the Firm

 The firm shall establish policies and procedures designed to promote an internal culture recognizing that
quality is essential in performing engagements. Such policies and procedures shall 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.
 The firm shall establish policies and procedures such that any person or persons assigned operational
responsibility for the firm’s system of quality control by the firm’s chief executive officer or managing board of
partners has sufficient and appropriate experience and ability, and the necessary authority, to assume that
responsibility.

Relevant Ethical Requirements | Independence

 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.
 Independence may be defined as the ability to act with integrity and objectivity and be seen to so act.
 The firm shall establish policies and procedures designed to provide it with reasonable assurance that the
firm, its personnel and, where applicable, others subject to independence requirements (including network
firm personnel) maintain independence where required by relevant ethical requirements. Such policies and
procedures shall enable the firm to:
 Communicate its independence requirements to its personnel and, where applicable, others subject to them;
and
 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, where withdrawal is permitted by law or
regulation.
 Such policies and procedures shall require:
 Engagement partners to provide the firm with relevant information about client engagements, including the
scope of services, to enable the firm to evaluate the overall impact, if any, on independence requirements;
 Personnel to promptly notify the firm of circumstances and relationships that create a threat to independence
so that appropriate action can be taken; and
 The accumulation and communication of relevant information to appropriate personnel so that:
 The firm and its personnel can readily determine whether they satisfy independence requirements;
 The firm can maintain and update its records relating to independence; and
 The firm can take appropriate action regarding identified threats to independence that are not at an acceptable
level.

5P a g e JABELLAR/AJABINAL/RBERCASIO/JMAGLINAO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

 The firm shall establish policies and procedures designed to provide it with reasonable assurance that it is
notified of breaches of independence requirements, and to enable it to take appropriate actions to resolve
such situations. The policies and procedures shall include requirements for:
 Personnel to promptly notify the firm of independence breaches of which they become aware;
 The firm to promptly communicate identified breaches of these policies and procedures to:
- The engagement partner who, with the firm, needs to address the breach; and
- Other relevant personnel in the firm and, where appropriate, the network, and those subject to the
independence requirements who need to take appropriate action; and
 Prompt communication to the firm, if necessary, by the engagement partner and the other individuals referred
to in subparagraph (b)(ii) of the actions taken to resolve the matter, so that the firm can determine whether it
should take further action.
 At least annually, 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.
 The firm shall establish policies and procedures:
- Setting out criteria for determining the need for safeguards to reduce the familiarity threat to an acceptable
level when using the same senior personnel on an assurance engagement over a long period of time; and
- Requiring, for audits of financial statements of listed entities, the rotation of the engagement partner and the
individuals responsible for engagement quality control review, and, where applicable, others subject to rotation
requirements, after a specified period in compliance with relevant ethical requirements.

 The IESBA Code recognizes that the familiarity threat is particularly relevant in the context of financial
statement audits of listed entities. For these audits, the IESBA Code requires the rotation of the key audit
partner after a pre- defined period, normally no more than seven years, and provides related standards and
guidance. National requirements may establish shorter rotation periods.

Acceptance and Continuance of Client Relationship and Specific Engagement

 An assessment of the professional risks associated with accepting and continuing with a client is completed
at the acceptance & continuance stage when:
- Accepting a new client;
- Determine whether we would continue a relationship with an existing client; and
- An “event” occurs which may compromise the firm’s independence or reputation or cause particular risk to the
firm for any other reason.
 The primary goals of A&C are:
 For engagement teams:
 to document their consideration of matters required by professional and ethical standards related to
acceptance and continuance;
 to identify and document issues or risk factors and their resolution, for example through consultation, by
adjusting the audit approach or by declining to perform the engagement; and
 to facilitate the evaluation of the professional risks associated with the client and engagement;
 For a member firm (including member firm leadership, risk management and other A&C approvers):
 to facilitate the evaluation of the professional risk associated with clients and engagements; and
 to provide an overview of the professional risks across the client portfolio;
 For the network:
 to provide a consistent methodology, basis and minimum considerations for all member firms to consider in
assessing audit acceptance and continuance

Supervision, Review and Consultations

 The Quality Review Partner ('QRP’) is an assurance partner who is assigned to the engagement in order to
objectively, amongst other things, evaluate, before the audit report is issued, the significant judgements made
by the engagement team and the conclusions reached in formulating the audit report (ISA 220.20).
 the QRP shall perform an objective evaluation of the significant judgements made by the engagement team,
and the conclusions reached in formulating the auditor’s report. This evaluation shall involve:
- Discussion of significant matters with the engagement leader;
- Review of the financial statements and the proposed auditor’s report;
- Review of selected audit documentation relating to the significant judgements the engagement team
made and the conclusions it reached; and
- Evaluation of the conclusions reached in formulating the auditor’s report and consideration of whether the
proposed auditor’s report is appropriate.
 For audits of financial statements of listed entities, the QRP, on performing an engagement quality control
review, shall also consider the following:
- The engagement team’s evaluation of the firm’s independence in relation to the audit engagement;
- Whether appropriate consultation has taken place on matters involving differences of opinion or other
difficult or contentious matters, and the conclusions arising from those consultations; and
- Whether audit documentation selected for review reflects the work performed in relation to the significant
judgments and supports the conclusions reached.
 Consultation is mandatory for certain audit issues. Depending on the facts and circumstances, other
accounting, auditing, or reporting matters may warrant consultation by the engagement leader. For matters
other than those designated as requiring consultation, the decision to consult rests with the engagement
leader.
 Matters agreed to be Consultations are subject to defined documentation, review and sign-off processes. A
significant matter and consultation documentation template is available to help prepare complete and concise
documentation

6P a g e JABELLAR/AJABINAL/RBERCASIO/JMAGLINAO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

 Significant Matter - A finding or issue that in our judgment is significant to the procedures performed, evidence
obtained, or conclusions reached. Significant matters either are, or could be, important to our audit opinion or
to the support for our opinion. They require consideration by the team manager and review and sign off by the
engagement leader, and frequently also require appropriate consultation. Examples of significant matters
include:
- Results of audit procedures indicating that the financial statements could be materially misstated, where
judgment is involved.
- New significant risks of material misstatement assessed after the risk assessment performed for planning
purposes, and the auditor’s responses to those risks.
- Circumstances that cause the auditor significant difficulty in applying necessary audit procedures.
- Findings that could result in a modification to the audit opinion or the inclusion of an emphasis of matter
paragraph in the auditor’s report.

Retention of Engagement Documentation

 The firm shall establish policies and procedures for the retention of engagement documentation for a period
sufficient to meet the needs of the firm or as required by law or regulation.

Monitoring

 The firm shall establish a monitoring process designed to provide it with reasonable assurance that the policies
and procedures relating to the system of quality control are relevant, adequate, and operating effectively. This
process shall:

- Include an ongoing consideration and evaluation of the firm’s system of quality control including, on a cyclical
basis, inspection of at least one completed engagement for each engagement partner;
- Require responsibility for the monitoring process to be assigned to a partner or partners or other persons with
sufficient and appropriate experience and authority in the firm to assume that responsibility; and
- Require that those performing the engagement or the engagement quality control review are not involved in
inspecting the engagement.

Evaluating, Communicating and Remedying Identified Deficiencies

 The firm shall evaluate the effect of deficiencies noted as a result of the monitoring process and determine
whether they are either:
- Instances that do not necessarily indicate that the firm’s system of quality control is insufficient to provide it
with reasonable assurance that it complies with professional standards and applicable legal and regulatory
requirements, and that the reports issued by the firm or engagement partners are appropriate in the
circumstances; or
- Systemic, repetitive or other significant deficiencies that require prompt corrective action.
 The firm shall communicate to relevant engagement partners and other appropriate personnel deficiencies
noted as a result of the monitoring process and recommendations for appropriate remedial action.
 The firm shall communicate at least annually the results of the monitoring of its system of quality control to
engagement partners and other appropriate individuals within the firm, including the firm’s chief executive
officer or, if appropriate, its managing board of partners. This communication shall be sufficient to enable the
firm and these individuals to take prompt and appropriate action where necessary in accordance with their
defined roles and responsibilities. Information communicated shall include the following:
- A description of the monitoring procedures performed.
- The conclusions drawn from the monitoring procedures.
- Where relevant, a description of systemic, repetitive or other significant deficiencies and of the actions taken
to resolve or amend those deficiencies.

Documentation of the System of Quality Control

 The firm shall establish policies and procedures requiring appropriate documentation to provide evidence of
the operation of each element of its system of quality control. (Ref: Para. A73-A75)
 The firm shall establish policies and procedures that require retention of documentation for a period of time
sufficient to permit those performing monitoring procedures to evaluate the firm’s compliance with its system
of quality control, or for a longer period if required by law or regulation.

7P a g e JABELLAR/AJABINAL/RBERCASIO/JMAGLINAO