AUDITING & ASSURANCE PRINCIPLES MIDTERMS 2

MULTIPLE CHOICE QUESTIONS

1. A firm should establish and maintain a system of quality control to provide it with
reasonable assurance that:
I. The firm and its personnel comply with professional standards and applicable legal and
regulatory requirements.
II. Reports issued by the firm or engagement partners are appropriate in the circumstances.
A. I only C. Both I and II
B. II only D. Neither I nor II

2. A CPA firm must establish and implement quality control policies and procedures
because these standards
A. Give reasonable assurance that the firm as a whole will conform with auditing and other
applicable professional standards.
B. Include formal filing of records of such policies and procedures with the PICPA.
C. Provide assurance that clients maintain quality reporting systems.
D. Are necessary to meet the requirements of the Financial Reporting Standards Council
(FRSC).

3. Quality control for a CPA firm applies to

A. Assurance services only.
B. Auditing and consulting services.
C. Auditing and tax services.
D. All engagements falling under the AASC’s engagement standards.

4. The nature and extent of a CPA firm’s quality control policies and procedures depend on
The Nature
The CPA of the CPA Cost-Benefit
Firm’s Size Firm’s Practice Consideration
A. Yes Yes No
B. No Yes Yes
C. Yes No Yes
D. Yes Yes Yes

5. The firm’s system of quality control should include policies and procedures that address each
of the following elements, except
A. Monitoring C. Relevant ethical requirements
B. Control environment D. Human resources

6. An audit firm should implement quality control 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.

7. Which of the following is incorrect?

A. A firm refers to a sole practitioner, partnership or other entity of CPAs.
B. A network firm is an entity under common control, ownership or management with the
firm or any entity that a reasonable and informed third party having knowledge of all
relevant information would reasonably conclude as being part of the firm nationally or
internationally.
C. A listed entity is an entity whose shares, stock or debt are quoted or listed on a
recognized stock exchange, or are marketed under the regulations of a recognized stock
exchange or other equivalent body.
D. Assurance team refers to partners and staff.

8. A CPA establishes quality control 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
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AUDITING & ASSURANCE PRINCIPLES MIDTERMS 2
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.

9. The requirement to promote a culture of quality is most closely associated with which of the
following quality control elements?
A. Engagement performance.
B. Relevant ethical requirements.
C. Leadership responsibility for quality within the firm.
D. Monitoring

10. In pursuing a CPA firm’s quality control 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 control element is this procedure most likely to satisfy?
A. Supervision. C. Experience requirements.
B. Professional relationship. D. Relevant ethical requirements.

11. In order to achieve effective quality control, a firm of independent auditors should establish
policies and procedures for
A. Determining the minimum procedures necessary for unaudited financial statements.
B. Setting the scope of the audit.
C. Deciding whether to accept or continue a client.
D. Setting the scope of internal control study and evaluation.

12. Which of the following is an element of a CPA firm’s quality control system that should be
considered in establishing its quality control policies and procedures?
A. Considering audit risk and materiality.
B. Managing human resources.
C. Using statistical sampling techniques.
D. Complying with laws and regulations.

13. In pursuing its quality control 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.

14. 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
B. Objectivity
C. Relevance
D. Professional behavior

15. 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 control procedure in the area of
A. Engagement performance.
B. Monitoring.
C. Human resources.
D. Leadership responsibility for quality within the firm.

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AUDITING & ASSURANCE PRINCIPLES MIDTERMS 2

16. 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 refers to what element of quality control?
A. Internal control.
B. Acceptance and continuance of client relationships and specific engagements.
C. Monitoring.
D. Human resources.

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 Revie
B. Engagement Team Review D. Engagement Quality Control Review

19. Which element of a system of quality control 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. Monitoring
B. Leadership responsibilities for quality within the firm
C. Human resources
D. Engagement performance

20. The following are essential components of quality control 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.

21. An audit firm should implement quality control 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.

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

23. 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 reviewer
C. Engagement team
D. Expert contracted by the firm in connection with the audit engagement
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AUDITING & ASSURANCE PRINCIPLES MIDTERMS 2

24. 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

25. 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
control reviewer.
C. Not issue the auditor’s report until the completion of the engagement quality control
review.
D. All of the above

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

27. 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 control 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).

28. 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.

29. 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.

30. 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
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D. At the completion of each engagement

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