QUALITY CONTROLS
CPAR
1. A basic objective of a CPA firm is to provide professional services that conform with
professional standards. Reasonable assurance of achieving this basic objective is provided
through
a. A system of peer review.
b. Continuing professional education.
c. A system of quality controls.
d. Compliance with generally accepted reporting standards.
2. The examination by CPAs of a CPA firm’s auditing practices to ascertain compliance with its
quality control system
a. Compliance audit
c. Peer review
b. Examination
d. Quality control audit
3. Quality control policies and procedures are required to be implemented at
a
b
c
d
• Audit firm level
Yes
Yes
No
No
• Individual audit level
Yes
No
Yes
No
4. The following factors affect the nature, timing and extent of an audit firm’s quality control
policies and procedures, except
a
b
c
d
• Size and nature of practice
Yes
Yes
No
No
• Geographic dispersion
Yes
Yes
Yes
No
• Organization
Yes
No
Yes
No
• Appropriate cost/benefit considerations
Yes
Yes
No
No
5. The firm is to be staffed by personnel who have attained and maintained the technical
standards and professional competence required to enable them to fulfill their responsibilities
with due care is the objective of what quality control policy?
a. Professional Requirements
c. Assignment
b. Skills and Competence
d. Delegation
6. In connection with the element of professional development, a CPA firm’s system of quality
control should ordinarily provide that all personnel
a. Have the knowledge required to 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 peer review directives.
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 personnel within the firm with:
a. Technical training that assures proficiency as an auditor.
b. Professional education that is required in order to perform with due professional care.
c. Knowledge required to fulfill assigned responsibilities and to progress within the firm.
d. Knowledge required in order to perform a peer review.
8. In pursuing its quality control objectives with respect to assigning personnel to engagements,
a public accounting 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.
9. A CPA firm’s personnel partner periodically studies the CPA firm’s personnel advancement
experience to ascertain whether individuals meeting stated criteria are assigned increased
degrees of responsibility. This is evidence of the CPA firm’s adherence to prescribed standards of
a. Quality control.
c. Supervision and review.
b. Due professional care.
d. Fieldwork.
10. The firm’s evaluation of the performance of its personnel and advising them of their progress
is a quality control procedure that relates to
a. Promotion c. Monitoring
b. Advancement
d. Directing
11. Which of the following relate to skills and competence as an objective of quality control
policies?
a. Advancement
c. Professional development
b. Hiring
d. All of these
12. Which of the following practices will promote the objectives of assignment of personnel?
A. Evaluates partners periodically by means of senior partner or fellow partner evaluation and
counseling as to whether they continue to have the qualifications to fulfill their responsibilities.
B. Identifies on a timely basis the staffing requirements of specific audits
C. Periodically counsels personnel as to their progress and career opportunities
D. Prepares time budget for audit to determine manpower requirements and to schedule audit
work.
a. A
b. A C c. B D d. All of them
Suggested Answer: C
13. Which of the following is not likely a quality control procedure on consultation?
a. Identifies areas and specialized situations where consultation is required and encourage
personnel to consult with or in use authoritative sources on other complex matters.
b. Designates individuals as specialists to serve as authoritative sources and define their authority
in consultative situations.
c. Assigns an appropriate person or persons to be responsible for assigning personnel to audits.
d. Specifies the extent of documentation to be provided for the result of consultation in those
and specialized situations where consultation is required.
Suggested Answer: C
14. Monitoring, as an element of quality control policies of a firm, requires:
a. Providing reasonable assurance that the firm’s other quality control policies and procedures
are effectively operating.
b. Designates individuals as specialists to serve as authoritative sources and define their authority
in consultative situations.
c. Ensuring that personnel are sufficiently directed, supervised and their work being reviewed
adequately.
d. Identify the right personnel to be assigned in an audit engagement.
Suggested Answer: A
15. Which of the following quality control procedures is a monitoring activity?
a. Evaluates the firm’s independence and its ability to serve the prospective client
b. Reviews and tests compliance with the firm’s general quality control policies and procedures.
c. Designates individuals as specialists to serve as authoritative sources and define their authority
in consultative situations.
d. Monitors continuing professional education programs and maintain appropriate records, both
on a firm and an individual audit engagement basis.
Suggested Answer: B
16. Which of the following objectives are generally a component of a firm’s quality control?
A. Professional requirements E. Consultation
B. Skills and competence
F. Due professional care
C. Assignment
G. Monitoring
D. Inspection
H. Delegation
a. A, B, C, D, E, F
b. A, B, C, F, E, G
Suggested Answer: C
c. A, B, C, E, G, H
d. B, C, G, F, H
17. Which of the following is not an element of professional requirements as prescribed by
Quality Control Policies for an audit firm?
a. Independence
c. Confidentiality
b. Integrity
d. Prudence
Suggested Answer: D
18. Which of the following is an element of “directing an audit assistant” objective?
a. Identifying in advance the staffing requirements of a particular audit engagement.
b. Informing assistants of their responsibilities and the objectives of the procedures they are to
perform.
c. Resolving any differences in professional judgment between audit personnel.
d. Resolution of differences in audit findings.
Suggested Answer: B
19. It involves informing assistants of their responsibilities and the objectives of the procedures
they have to perform:
a. Supervision b. Monitoring c. Directing d. Consultation
Suggested Answer: C
20. What is the overriding reason why the auditor considers the professional competence of
assistants whom the work will be delegated?
a. All the audit assistants assigned to an engagement must be independent in appearance.
b. To have reasonable assurance that such work will be performed with due care by the audit
assistant.
c. To lessen the working paper preparation.
d. To eliminate audit risk.
Suggested Answer: B
21. Which of the following is(are) quality control policies on an audit firm level?
Consultation Assignment Direction
a.
Yes
No
Yes
b.
No
No
Yes
c.
Yes
No
Yes
d.
Yes
Yes
No
Suggested Answer: D
22. Which one of the following relates to delegation objective of quality control?
a. The firms creates a group that provides technical training to audit staff.
b. There is to be a sufficient direction, supervision, and review of work at all levels to provide
reasonable assurance that the work performed meets appropriate standards of quality.
c. Assignment of work to the more qualified personnel.
d. Whenever necessary, consultation within or outside the firm is to occur with those who have
appropriate expertise.
Suggested Answer: B
23. Which of the following is (are) helpful in communicating audit directions?
a
b
c
d
• Audit program
Yes
Yes
Yes
No
• Overall audit plan Yes
Yes
No
No
• Time budgets
Yes
No
No
No
Suggested Answer: A
24. Generally Accepted Auditing Standards (GAAS) and Philippine Standards on Auditing (PSA)
should be looked upon by practitioners as:
a. Ideals to work towards, but which are not achievable
b. Maximum standards which denote excellent work.
c. Minimum standards of performance which must be achieved on each audit engagement.
d. Benchmark to be used on all audits, reviews, and compilations.
Suggested Answer: C
25. Which of the following best describes what is meant by Generally Accepted Auditing
Standards?
a. Pronouncements issued by the Auditing Standards and Practices Council.
b. Procedure to be used to gather evidence to support financial statements.
c. Rules acknowledged by the accounting profession because of their universal compliance.
d. Measures of the quality of the auditor’s performance
Suggested Answer: D
26. An auditor need not abide by an auditing standard if the auditor believes that
a. The amount is immaterial
b. The requirement of the standard is impractical to perform
c. The requirement of the standard is impossible to perform
d. Any of the three above is correct.
Suggested Answer: D
27. A CPA should comply with applicable generally accepted auditing standards on every
Engagement a. Without exception
b. Except in examinations that result in a qualified report
c. Except in engagements where the CPA is associated with unaudited financial statements.
d. Except in examinations of interim financial statements.
Suggested Answer: A
28.
1. To exercise due professional care the auditor should examine all available
corroborating evidences supporting management’s assertions.
2. The proper attitude of an auditor who is performing an examination in accordance with
GAAS should be professional responsiveness.
3. GAAS means rules acknowledged by the accounting profession because of their
universal application.
a.
b.
c.
d.
First statement
True False True True
Second statement
False False True False
Third statement
False False True True
Suggested Answer: B
29. A CPA is most likely to refer to one or more of the three general auditing standards in
determining
a. The nature of the CPA’s auditing qualification.
b. The scope of the CPA’s auditing procedures.
c. Requirements for the review of internal control.
d. Whether the CPA should undertake an audit engagement.
Suggested Answer: D
30. The general standards stress the importance of
a. The personal qualities which the auditor should have
b. Evidence accumulation
c. Communicating the auditor’s finding to the reader
d. All of the above
Suggested Answer: A
31. The Audit Standard which requires “adequate technical training and proficiency” is normally
interpreted as requiring the auditor to have
a. Formal education in auditing and accounting
b. Adequate practical experience for the work being performed
c. Continuing professional education
d. All of the above
Suggested Answer: D
32. Which of the following is not required by the Generally Accepted Auditing Standards that
states that due professional care is to be exercised in the performance of the audit?
a. Observance of the standards of field work and reporting
b. Critical review of the audit work performed at every level of supervision
c. Degree of skill commonly possessed by others in the profession.
d. Responsibility for losses because of errors of judgment
Suggested Answer: D
33. The first general standard requires that the audit of financial statements be performed by a
person or persons having adequate technical training and
a. Independence with respect to the financial statements and supplementary disclosures.
b. Exercising professional care as judged by peer reviewers.
c. Proficiency as an auditor, which likely has been acquired from previous experience.
d. Objectivity as an auditor, as verified by proper supervision.
Suggested Answer: C
34. Which of the following is mandatory if the auditor is to comply with generally accepted
auditing standards?
a. Possession by the auditor of adequate technical training.
b. Use of analytical review on audit engagements.
c. Use of statistical sampling whenever feasible on an audit engagement.
d. Confirmation by the auditor of material accounts receivable balances.
Suggested Answer: A
35. Competence as a certified public accountant includes all of the following except
a. Having the technical qualifications to perform an engagement.
b. Possessing the ability to supervise and evaluate the quality of staff work.
c. Warranting the infallibility of the work performed.
d. Consulting others if additional technical information is needed.
Suggested Answer: C
36. An auditor who accepts an audit engagement and does not possess the industry expertise of
the business entity, should
a. Engage financial experts familiar with the nature of the business entity.
b. Obtain a knowledge of matters that relate to the nature of the entity's business.
c. Refer a substantial portion of the audit to another CPA who will act as the principal auditor.
d. First inform management that an unqualified opinion cannot be issued.
Suggested Answer: B
37. In any case in which the CPA or the CPA’s assistants are not qualified to perform the work, a
professional obligation exists to
a. Acquire the requisite knowledge and skills
b. Suggest someone else who is qualified to perform the work
c. Decline the engagement
d. Any of the above
Suggested Answer: D
38. A CPA, while performing an audit, strives to achieve independence in appearance in order to
a. Reduce risk and liability.
b. Comply with the generally accepted standards of field work
c. Become independent in fact.
d. Maintain public confidence in the profession.
Suggested Answer: D
39. The standard of due audit care requires the auditor to
a. Apply judgment in a conscientious manner, carefully weighing the relevant factors before
reaching a decision.
b. Ensure that the financial statements are free from error.
c. Make perfect judgment decisions in all cases.
d. Possess skills clearly above the average for the profession.
Suggested Answer: A
40. The third general standards states that due care is to be exercised in the performance of the
examination. This standard should be interpreted to mean that a CPA who undertakes an
engagement assumes a duty to perform.
a. With reasonable diligence and without fault or error.
b. As a professional who will assume responsibility for losses consequent upon error of judgment.
c. To the satisfaction of the client and third parties who may rely upon it.
d. As a professional possessing the degree of skill commonly possessed by others in the field.
Suggested Answer: D
41. The third general standard states due care is to be exercised in the performance of an audit.
This standard is generally interpreted to require
a. Objective review of the adequacy of the technical training and proficiency of firm personnel
b. Critical review of work done at every level of supervision
c. Thorough review of the existing internal control structure
d. Periodic review of a CPA firm’s quality control procedures.
Suggested Answer: B
42. The first standard of fieldwork, which states that the work is to be adequately planned, and
assistants, if any, are to be properly supervised, recognizes that
a. Early appointment of the auditor is advantageous both to the auditor and to the client.
b. Acceptance of an audit engagement after the close of the client's fiscal year is generally not
permissible.
c. Appointment of the auditor subsequent to the physical count of inventories requires a
disclaimer of opinion.
d. Performance of substantial parts of the engagement is necessary at interim dates.
Suggested Answer: A
43. With respect to the auditor’s planning of a year-end audit, which of the following statements
is always true?
a. An engagement should not be accepted after the fiscal year-end.
b. An inventory count must be observed at the balance sheet date.
c. The client’s audit committee should not be told of the specific audit procedures that were
performed.
d. It is an acceptable practice to carry out part of the audit at interim dates.
Suggested Answer: D
44. Which of the following statements is incorrect?
a. The auditor’s report must state whether the financial statements were prepared with
GAAP.
b. The auditor’s report must state whether GAAP was consistently followed from the prior period
to the current period.
c. The auditor’s report must imply whether the client has provided adequate disclosure on the
financial statements and in the accompanying notes.
d. The auditor’s report must express an opinion on the financial statements taken as a whole, or
explain why there is no opinion provided.
Suggested Answer: B
45. The fourth standard of reporting requires the auditor’s report to contain either an expression
of opinion regarding the financial statements taken as a whole or an assertion to the effect that
an opinion cannot be expressed. The objective of the fourth standard is to prevent
a. An auditor from expressing different opinions on each of the basic financial statements.
b. Restrictions on the scope of the examination, whether imposed by the client or by the inability
to obtain evidence.
c. Misinterpretations regarding the degree of responsibility the auditor is assuming
d. An auditor from reporting on one basic financial statement and not the others.
Suggested Answer: C
ReSA
1. The policies and procedures adopted by a firm designed to provide it with reasonable
assurance regarding compliance with professional standards regulatory and legal requirements,
and appropriateness of reports issued by the firm:
A. Internal controls
B. Monitoring
C. Code of Ethics
D. Quality Controls
Suggested Answer: D
2. A basic objectives of a CPA firm is to provide professional services that conform with
professional standards. Reasonable assurance of achieving this basic objectives is provided
though
A. A system of peer review
B. Continuing professional education
C. System of quality control
D. Compliance with PSA
Suggested Answer: C
3. PSQC No. 1 applies to ____________, while PSA 220 applies to ____________.
A. Assurance engagements, audits
B. Audits, assurance engagements
C. Audits, reviews
D. Assurance, reporting
Suggested Answer: A
4. Which of the following are elements of quality control according to PSQC 1?
A. Leadership responsibilities
B. Relevant ethical requirements
C. Monitoring
D. All of the above
Suggested Answer: D
5. The firm’s leadership includes the following:

Chief executive officer
A
Yes
B
Yes
C
No
D
No

Managing board of partners
No
Yes
Yes
No
Suggested Answer: B
6. Actions and messages that encourage culture of quality are communicated though:
A. Training, seminars, meetings, formal or informal dialogue, mission statements.
B. Newsletters and briefing memoranda, internal documentation and training materials.
C. Partners and staff appraisal procedures
D. All of these
Suggested Answer: D
7. Ethical requirements to which the engagement team and engagement quality control reviewer
are subject, which ordinarily comprise parts A and B of the Code of Ethics together with national
requirements that are more restrictive.
A. Fundamental principles
B. Relevant ethical requirements
C. Client screening criteria
D. Pre-conditions to an audit
Suggested Answer: B
8. The following are the fundamental principles of professional ethics, except:
A. Independence
B. Professional competence and due care
C. Objectivity
D. Integrity
Suggested Answer: A
9. Which of the following to self-interest threat?
A. This may occur as a result of the financial or other interests of a professional accountant or
close family member
B. This may occur when a previous judgment need to be re-evaluated by the professional
accountant responsible for that judgment
C. This may occur when a professional accountant promotes a position or opinion to the point
that subsequent objectivity may be compromised
D. This may occur when, because of a close relationship, a professional accountant becomes too
sympathetic to the interest of the others
Suggested Answer: A
10. The firm should obtain written confirmation of compliance with its policies and procedure on
independence from all firm personal required to be independent by the
Code of Ethics at least:
A. Monthly
B. Quarterly
C. Annually
D. Every 3 years
Suggested Answer: C
11. By obtaining confirmation and taking appropriate action on information indicating
noncompliance, the firm demonstrates the importance that it attaches to independence and
makes the issue current, and visible to, its personnel. Written confirmation:
A. May be in paper format only
B. May be in electronic format only
C. May be in paper form or electronic form.
D. Is not required since oral confirmation will suffice per PSQC1.
Suggested Answer: C
12. The familiarity threat that may be created by using the same senior personnel on an
assurance engagement over a long period of time and the safeguards that might be appropriate
to address such a treat. Accordingly, safeguards may include:
A. Rotation of senior personnel
B. Engagement quality control review
C. Both A and B
D. Neither A or B
Suggested Answer: C
13. With regard to the integrity of a client, matters the firm considers include the following:
A. The identity and business reputations client’s principal owners, key management, related
parties and those charged with its governance.
B. The nature of the client’s operations, including its business practices.
C. Information concerning the attitude of the client’s principal owners, key management and
those charged with its governance towards such matters as governance towards such matters as
aggressive interpretation of accounting standards and the internal control environment.
D. All the answers
Suggested Answer: D
14. A CPA, while performing an audit, strives to achieve independence in appearance in order to
A. Reduce the risk and the liability of the auditor
B. Comply with the requirements of the various regulators
C. To achieve independent in fact
D. Maintain public confidence in the profession
Suggested Answer: D
15. A CCPA, establishes quality control policies and procedures for deciding whether to accept
new client or continue to perform services for a current client. The primary purpose for
establishing such policies and procedures is
A. To enable the auditor to attest to the integrity or reliability of the client
B. To comply with the quality control standards established by regulatory bodies
C. To lessen the exposure to litigation resulting from failure to detect irregularities in client
financial statements
D. To minimize the likelihood of association with client whose management lacks integrity
Suggested Answer: D
16. A firm has 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. Reporting 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, sine the Code of the Ethics requires started engagement to be
finished regardless of subsequent developments and information
Suggested Answer: D
17. When a firm withdraws from an engagement, the firm may have reportorial responsibilities
to the following:
A
B
C
D
 Appropriate level of management Yes
Yes
Yes
Yes
 Those charged with governance
Yes
Yes
No
No
 Regulatory authorities
Yes
No
No
Yes
Suggested Answer: A
18. Personal issue that must be addressed by the system of quality control include the following:
A. Recruitment and performance evaluation
B. Capabilities and competence
C. Career development and promotion
D. Compensation and estimation of personal needs
E. All of the answers.
Suggested Answer: E
19. Which of the following methods are most likely to develop capabilities and competence?
A. Professional education
B. Continuing professional development, including training.
C. Work experience and coaching by more expensive experienced staff
D. Self-study modules on professional accounting and auditing literature
E. All of the answers.
Suggested Answer: E
20. Engagement supervisions includes:
A. Tracking the progress of the engagement.
B. Considering the capabilities and the competence of individual members of client personnel.
C. Addressing all issues arising during the engagement and modifying the planned approach
appropriately.
D. Identifying matters for consultation or considering by less experienced engagement team
members during the engagement.
Suggested Answer: A
21. A reviewers responsibilities shall include the following except:
A. The work has been performed in accordance with GAAP
B. Consultation with experts has been made of all phases of the engagement
C. The worked performed supports the conclusions reached and is appropriately documented;
D. Whether the system of quality control is operating effectively and adequately
Suggested Answer: A
22. 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 scope of imitation
B. An increase in the audit free 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 author will withdraw
from the engagement altogether
D. The report shall not be issued until the matter is resolved
Suggested Answer: D
23. This is 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 review
B. Engagement judgment review procedures
C. Peer review
D. System of quality control
Suggested Answer: A
24. An engagement quality control review is required to be performed:
A. Immediately after the re-assessment of control risk
B. For all the audits of financial statements listed entities
C. For all types of audits, regardless of the subject matter of the engagement
D. At engagement completion after the report is issued
Suggested Answer: B
25. A partner, other person in the firm, suitability qualified external person, or a team made up
of such individuals, with sufficient and appropriate experience and authority to objectively and
the conclusions they reached in formulating the report.
A. Engagement partner
B. Engagement quality control reviewer
C. Personnel
D. Suitability qualified external person
Suggested Answer: B
26. An individual outside the firm with the capabilities and the competence to act as an
engagement partner, for example a partner of another firm, or an employee (with appropriate
experience) of either professional accountancy body whose members ma perform audits and
reviews of historical financial information, or other assurance or related services engagements,
or of an organization that provides quality control services.
A. Suitability qualified external person
B. Partner
C. Engagement partner
D. Engagement quality control reviewer
Suggested Answer: A
27. What aspects are most important in determining the eligibility of engagement quality control
reviewers?
A. Technical qualifications and objectivity.
B. Integrity and objectivity.
C. Competence and independence.
D. All of these
Suggested Answer: A
28. Original paper documentation may be scanned and stored electronically for practical reasons.
After scanning, the original paper document:
A. Shall be discarded following established principles on waste disposal.
B. Shall be kept on fie for future reference.
C. Shall be considered for retention or disposal depending on legal or regulatory requirements
and other factors.
D. None of these
Suggested Answer: C
29. In the case of the audit, final engagement files should be completely assembled not more
than days after of the audit report:
A. 60
B. 30
C. 10
D. 5
Suggested Answer: A
30. The normal retention period for audit engagement documentation is no shorter than from
the date of the audit report.
A. Two years
B. Four years
C. Five years
D. Seven years
Suggested Answer: D
31. The process compromising an ongoing consideration and evaluation on the firm’s system of
quality control, including a periodic inspection of a selection of completed engagements,
designed to enable the firm to obtain reasonable assurance that its system of quality control is
operating effectively.
A. Inspection
B. Engagement quality control reviewer
C. Quality reviewer
D. Monitoring
Suggested Answer: D
32. In relation to completed engagements, these are procedures designed to provide evidence
of compliance by engagement teams with the firm’s quality control policies and procedures.
A. Inspection
B. Quality control
C. Monitoring
D. Engagement quality control reviewer
Suggested Answer: A
33. The inspection of a selection of completed engagements is ordinarily performed on a cyclical
basis. Engagements selected for the inspection include at least:
A. One engagement for each engagement partner over an inspection cycle.
B. Two engagement for each engagement partner over an inspection cycle.
C. One engagement for each firm over an inspection cycle.
D. Two engagement for each firm over an inspection cycle.
Suggested Answer: A
34. An Inspection cycle ordinarily spans no more than:
A. One year
B. Two years
C. Three years
D. Four years
Suggested Answer: C
35. The firm should be communicate the results of the monitoring of its quality control system to
engagement partners and other appropriate individuals within the firm at least every:
A. Six months
B. 12 months
C. Two years
D. Three years
Suggested Answer: B
36. John and Co. is a firm of a certified public accountants. One of the partners, 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?
A. Yes, as Collin is a better position to conduct the inspection, because of his previous experience
with the engagements.
B. Yes, PSQC 1 did not mention any prohibition relating to members of the engagement team
conducting inspection.
C. No, Collin should not conduct the inspection of these engagements ass he has been associated
with them is some manner.
D. No, Collin does not have the necessary competence as he is only a director, inspection must
be performed by an audit partner.
Suggested Answer: C
37. Anthony and Company is a firm of Certified Public Accountants which has two partners,
Anthony and Hooper. In the current year the firm celebrated its 5 th in practice. Two partners,
had 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?
A. Yes, PSQC 1 requires that the firm must have policies and procedures in monitoring its quality
control policies and procedures.
B. Yes, but since the firm is composed only two partners, they can perform the monitoring once
every 5 years.
C. 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.
D. No, since the firm is small practice and PSQC 1 does not require monitoring for mall practice.
Suggested Answer: A
38. ABC Company has just completed its annual independence review. Gerry the partner in
charge for the independence is reviewing a completed copy of the independence declaration
form and noticed 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?
A. 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.
B. Assigned an engagement quality control reviewer to ensure that all judgement by
Miss Rita are reviewed and ensure she remains objective.
C. Transfer Miss Rita to another engagement to reduce risk of non-compliance with the
independence requirement.
D. 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.
Suggested Answer: C
39. In performing an acceptance and continuance procedures for a newly accepted engagement,
Ace a new partner in the firm should obtain information relating to:
I. The integrity of the client’s management
II. Independence of the firm
III. Competency to serve the client appropriately
A. I and II only
B. II and III only
C. I and II only
D. I, II and III
Suggested Answer: D
40. Who is responsible for forming a conclusion on compliance with independence requirements
that apply to the audit engagements?
A. Audit staff
B. Audit supervisor
C. Engagement supervisor
D. Engagement partner
Suggested Answer: D
41. The firm should obtain such acceptance and continuance information as it considers
necessary in the circumstances such as when:
A. accepting an engagement with a new client
B. deciding whether to continue an existing engagement
C. accepting a new engagement with an existing client
D. All of the answer
Suggested Answer: D
42. Review responsibilities are determined on the basis that _______ experienced team members
review the work of ____ experienced team members.
A. More, more
B. More, less
C. Less, more
D. Less, less
Suggested Answer: B
43. Reviewers consider:
A. The work has been performed in accordance with GAAP.
B. Consultation with experts has been made for all phases of the engagement.
C. The work performed supports the conclusions reached and is appropriately documented;
D. Whether the system of quality control is operating effectively and adequately.
Suggested Answer: C
44. Unless otherwise specified by law, engagement documentation is owned by:
A. The client.
B. The firm.
C. The client and the firm.
D. The Board of Accountancy
Suggested Answer: B
45. Responsibility for monitoring process is entrusted to:
A. Audit associates.
B. Senior associates.
C. Managers.
D. Partners.
Suggested Answer: D
46. Monitoring of the firm’s system of quality control is performed by competent individuals and
covers:
A
B
C
D
 Appropriateness of the design of quality controls Yes
No
No
Yes
 Effectiveness of the operation of quality controls No
Yes
No
Yes
Suggested Answer: D
47. The firm should establish policies and procedures requiring appropriate documentation to
provide evidence of the operation of each element of its system of quality control. How such
matters are documented is based on:
A. PSQC No. 1
B. PSA 220
C. Philippines Audit Practice Statement
D. The firm’s decision
Suggested Answer: D
Nation’s Foremost CPA Review
1. The Philippines Standard on Quality Control (PSQCs) are to be applied to
a. Assurance engagements only.
b. Review engagement only.
c. Compilation and review engagements only.
d. All services that fall under the AASCs engagement standards.
Suggested Answer: D
2. The main purpose of implementing a system of quality control is to provide firm reasonable
assurance of the following, except
a. Firm and its personnel will comply with PSA and legal requirements to enable the firm to issue
an appropriate report.
b. Audit will be conducted in accordance with PSA.
c. Personnel to perform every engagement shall be independent.
d. The firm will issue a report that is appropriate in the circumstances.
Suggested Answer: C
3. A basic objective of a CPA firm is to provide professional services that conform with
professional standards. Reasonable assurance of achieving this basic objective is provided
through
a. A system of peer review.
b. A system of quality controls.
c. Continuing professional education.
d. Compliance with generally accepted reporting standards.
Suggested Answer: B
4. Which of the following factors affect the nature, timing and extents of an audit firm’s quality
control policies and procedures?
a.
b.
c.
d.
 Size and nature of practice
Yes
Yes
No
No
 Geographic dispersion
Yes
Yes
Yes
No
 Organization
Yes
No
Yes
No
 Appropriate cost/benefit considerations
Yes
Yes
No
No
Suggested Answer: A
5. Which of the following is not an element of quality control?
a. Documentation.
c. Engagement performance.
b. Monitoring.
d. Relevant ethical requirements
Suggested Answer: A
6. Audit firms are subject to many risks when they carry out an audit assignment. As a result of
this, the firm may suffer:
a. Action through the courts so that damages are payable
b. loss of client
c. Adverse publicity and loss of reputation
d. All of the following may be suffered by the firm
Suggested Answer: D
7. Which of the following statements is/are correct?
S1: It is in the interests of the firm to manage the firm overall and each individual audit such that
the Code of Professional Ethics for CPAs is followed at all times.
S2. It is in the interests of the firm to manage the firm overall and each individual audit such that
the Philippine Auditing Standards (PSAs) are followed at all times.
a. Only statement 1 is correct
c. Both statements are correct
b. Only statement 2 is correct
d. Both statements are incorrect
Suggested Answer: C
8. “Philippine Standards on Auditing (PSAs)” is best described to mean
a. Acts to be performed by the auditor.
b. Measures of the quality of the auditions performance.
c. Procedures to be used to gather evidence to support financial statements.
d. Audit objectives generally determined on audit engagements.
Suggested Answer: B
9. How should generally accepted auditing standards and the Philippine Standards on Auditing
be looked on by CPA practitioners?
a. They are maximum standards that must be complied with.
b. They are minimum standards of performance.
c. They are clearly defined guidelines for determining the extent of evidence to be accumulated.
d. They are minimum specific audit procedures that the auditors are expected to perform.
Suggested Answer: B
10. Which of the following statements regarding quality control policies and procedures is
incorrect?
a. Quality control policies and procedures should be implemented at both the level of audit firm
and on an individual audits.
b. The audit firm should implement quality control and procedures designed to ensure that all
the audits are conducted in accordance with PSAs or relevant national standards or practices.
c. Quality control policies are objective and goals while quality control procedures are steps to
be taken to accomplish the policies adopted.
d. The policies nad procedures adopted by individual audit firms should not vary since there is an
applicable PSA that prescribes quality control policies and procedures that must be adopted by
all auditing firms.
Suggested Answer: D
11. Quality control in audit firms, both at the firm level and at the level of a specific audit is
essential to all audit firms. Methods of quality control in large firms include all of the following
except
a. Peer reviews
c. Sub-contracting work to other practices
b. Use of technical manuals
d. Training
Suggested Answer: C
12. In pursuing a firm’s quality control objectives, a frim 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
engagement. Which quality control element would this be most likely to satisfy?
a. Ethical requirements
b. Monitoring
c. Leadership responsibilities for quality within the firm
d. Human resources
Suggested Answer: A
13. A firm of CPAs may use policies and procedures such as notifying professional personnel as
to the names of audit clients having publicly held securities and periodically confirming with such
personnel that prohibited relations do not exist. This is done to achieve effective quality control
in which of the following areas?
a. Independence
b. Inspection
c. Acceptance and continuance of clients
d. Assigning personnel to engagement
Suggested Answer: A
14. The primary 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 client
c. Minimize the likelihood of association with client whose management lacks integrity
d. Anticipate before performing any fieldwork whether an unqualified opinion can be expressed
Suggested Answer: C
15. The firm should obtain such acceptance and continuance information
necessary in the circumstances such as when
a
b
Accepting an engagement with a new client
Yes
Yes
Yes
Deciding whether to continue and existing engagement
Yes
Yes
No
Accepting a new engagement with an existing client
Yes
No
as it considers
c
Yes
No
No
d
Yes
Suggested Answer: A
16. In pursuing quality control objectives with respect to acceptance of a client, a CPA firm is not
likely to
a. Make inquiries of the proposed client’s legal counsel.
b. Make inquiries of previous auditors.
c. Review the financial statements of the proposed client.
d. Review the personnel practices of the proposed client.
Suggested Answer: D
17. Which element of a system of quality control is addressed by the establishment of the policies
and procedures designed to provide the firm with reasonable assurance that it has sufficient
personnel with competence, capabilities, and commitment to ethical principles?
a. Ethical requirements
b. Monitoring
c. Leadership responsibilities for quality within the firm
d. Human resources
Suggested Answer: D
18. Within the context of quality control, the primary purpose of continuing professional
education and training activities, is to enable a CPA firm to provide personnel within the firm
with:
a. Technical training that assures proficiency as an auditor.
b. Professional education that is required in order to perform with due professional care.
c. Knowledge required to fulfill assigned responsibilities and to progress within the firm.
d. Knowledge required in order to perform a peer review.
Suggested Answer: C
19. Where internal technical and training resources are unavailable, the firm
a. Violates a basic tenet of quality control regarding capabilities and competence.
b. Cannot adequately provide for the professional development needs of its members.
c. Must obtain, within two years, the necessary internal technical and training resources.
d. May use a suitably qualified external person for the purpose.
Suggested Answer: D
20. A CPA firm’s personnel partner periodically studies the CPS firm’s personnel advancement
experience to ascertain whether individuals meeting stated criteria are assigned increased
degrees of responsibility. This is evidence of the CPS firm’s adherence to prescribed standards of
a. Quality control
b. Due professional care
c. Supervision and review
d. Fieldwork
Suggested Answer: A
21. This quality control element requires a frim 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 of engagement partner issues
reports that are appropriate in the circumstances.
a. Ethical requirements
b. Monitoring
c. Engagement performance
d. Human resources
Suggested Answer: C
22. The partner or other person in the firm who is responsible in the engagement and its
performance, and for the report that is issued on behalf of the firm, and who, where required,
has the appropriate authority from a professional, legal or regulatory body.
a. Engagement partner
b. Engagement quality control reviewer
c. Personnel
d. Suitably qualified external person
Suggested Answer: A
23. All personnel performing an engagement, including any experts contracted by the firm in
connection with that engagement.
a. Staff
b. Personnel
c. Professionals
d. Engagement team
Suggested Answer: D
24. In pursuing its quality control objectives with respect to assigning personnel to engagements,
a public accounting 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 assignment 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.
Suggested Answer: B
25. Which of the following is not an example of quality control procedure likely to be used by a
public accounting firm to meet its professional responsibilities to clients?
a. Completion of independence questionnaires by all partners and employees.
b. Review and approval of audit plan by the partner in charge of the engagement just prior to
signing the auditor’s report.
c. Evaluating professional staff after the conclusion of each engagement.
d. Evaluating its integrity of management for each new audit client.
Suggested Answer: B
26. Supervision includes:
a. Tracking the progress of the engagement.
b. Considering the capabilities and competence of individual members of client personnel.
c. Addressing all issues arising during the engagement and modifying the planned approach
appropriately.
d. Identifying matters for consultation or consideration by less experienced engagement team
members during the engagement.
Suggested Answer: A
27. 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
standard 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 of personnel.
Suggested Answer: B
28. Consultation may be obtained in the form of advisory services provided by:
a. Other firms
b. Professional and regulatory bodies
c. Commercial organizations that provide relevant quality control services
d. Any of these
Suggested Answer: D
29. Which of the following is not likely a quality control procedure on consultation?
a. Identifies areas and specialized situations where consultation is required and encourages
personnel to consult with or in use authoritative sources on other complex matters.
b. Designates individuals as expert to serve as authoritative sources and define their authority in
consultative situations.
c. Specifies the extent of documentation to be provided for the result of consultation in those
areas and specialized situations where consultation is required.
d. Assigns an appropriate person or persons to be responsible for assigning personnel to audits.
Suggested Answer: D
30. During the course of audit engagement, the CPA needed additional studies and consultation
with experts. This additional study and consultation is deemed to be
a. An unusual practice which should have voided the audit engagement
b. Lack of competence on the part of the CPA
c. An appropriate part of the professional conduct of the audit engagement
d. Undertaken as a responsibility of management
Suggested Answer: C
31. A partner, other person in the firm, suitably qualified external person, or a team made up of
such individuals, with sufficient and appropriate experience and authority to objectively
evaluate, before the report is issued, the significant judgment the engagement team made and
the conclusions they reached in formulating the report.
a. Engagement partner
b. Engagement quality control reviewer
c. Personnel
d. Suitably qualified external person
Suggested Answer: B
32. A process designed to provide and objective evaluation, before the report is issued, of the
significant judgments the engagement team made and the conclusions they reach in formulating
the report
a. Peer review
b. Engagement quality control review
c. Inspection
d. Monitoring
Suggested Answer: B
33. An engagement quality control review is required to be performed:
a. Immediately after the re-assessment of control risk
b. For all types of audits, regardless of the subject matter
c. At engagement completion after the report is issued
d. For all audits of financial statements of listed entities
Suggested Answer: D
34. Per PSQC1, what aspects are most important in determining the eligibility of engagement
quality control review?
a. Technical qualifications and objectivity
b. Integrity and objectivity
c. Competence and independence
d. All of these
Suggested Answer: A
35. An individual outside the firm with the capabilities and competence to act as an engagement
partner.
a. Suitably qualified external person
b. Partner
c. Engagement partner
d. Engagement quality control reviewer
Suggested Answer: A
36. 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 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.
Suggested Answer: D
37. ABC and Co., a large international CPA firm, is to have an “external peer review”. The peer
review will most likely be performed by
a. Employees and partners of ABC and Co. who are not associated with the particular audits being
reviewed.
b. Audit review staff of the Securities and Exchange Commission.
c. Audit review staff of the PICPA.
d. Employees and partners of another CPA firm.
Suggested Answer: D
38. The record of work performed, results obtained and conclusions that practitioner reached.
a. Engagement documentation
b. Audit program
c. Current file
d. Permanent file
Suggested Answer: A
39. In the case of an audit, the final engagement files, should be completely assembled not more
than:
a. 5 days after the date of the audit report
b. 30 days after the date of the audit report
c. 10 days after the date of the audit report
d. 60 days after the date of the audit report
Suggested Answer: D
40. What is the normal retention period for audit engagement documentation?
a. No shorter than one year from the date of the audit report
b. No shorter than seven years from the date of the audit report
c. No shorter than four years from the date of the audit report
d. No shorter than five years from the date of the audit report
Suggested Answer: B
41. The firm should establish policies and procedures requiring appropriate documentation to
provide evidence of the operation of each element of its system of quality control. How such
matters are documented is based on
a. PSQC1
b. PSA 220
c. PAPS
d. The firm’s decision
Suggested Answer: D
PRTC
1. Which of the following mostly describes the function of AASC?
a. To monitor full compliance by auditors to PSAs
b. To promulgate engagement standards, practices, and procedures that shall be
generally accepted by the accounting profession in the Philippines
c. To assist the Board of Accountancy in conducting administrative proceedings on
erring CPAs in public practice
d. To undertake continuing research on both auditing and financial accounting in order
to make them responsive to the needs of the public
2. The least likely form of pronouncement of the AASC on engagement standards,
practices and procedures is
a. Philippine Auditing Practice Statements (PAPSs)
b. Philippine Standards on Auditing (PSAs)
c. Philippine Standards on Related Services (PSRSs)
d. Financial Reporting Framework (e.g. PFRSs)
3. The standards of the Auditing and Assurance Standards Council include Philippine
standards on:
I.
Quality control
II.
Tax Engagements
III.
Review Engagements
IV.
Assurance Engagements
V.
Consulting Engagements
a. I, II and III only
b. I, II and IV only
c. I, III and IV only
d. I, II, III, IV and V
4. Which of the following is not true of Practice Statements?
a. These statements are not intended to have the standards
b. These statements are intended to have the authority of the standards
c. These statements are issued to provide practical assistance to auditors in
implementing the standards
d. These are not form of interpretations issued by the AASC
5. 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
6. 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
7. Which of the following is not an element of quality control?
a. Documentation
b. Inspection
c. Supervision
d. Consultation
8. 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
9. 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
10. The skills and qualities of the engagement team is likely to provide a positive
contribution to audit quality where
a. partner 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
11. If there is a significant difference of opinion between a senior auditor and an audit
manager on an audit engagement, to whose attention should the senior auditor first
bring the matter?
a. The managing partner or senior partner of the firm
b. The engagement partner on the engagement
c. The practice advisor in the CPA affiliate office
d. Another audit manager in the firm
12. In relation to completed engagements, these are procedures designed to provide
evidence of compliance by engagement teams with the firm’s quality control policies
and procedures
a. Engagement quality control review
b. Inspection
c. Monitoring
d. Quality control
13. 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 review monitoring team
14. The firm may obtain information to determine integrity of the client from the following,
except:
a. 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
b. Inquiry of other firm personnel or third parties such as bankers, legal counsel and
industry peers
c. Background searches of relevant databases
d. All of the above
15. All prospective clients wishing their financial statements to be audited by an
independent auditor should be accepted by the auditor as the service of the auditor is
for public interest.
A previous client may always be an acceptable client to the auditor.
a. True, true
b. True, false
c. False, true
d. False, false
16. Defensive auditing includes all of the following except
a. Clarifying the nature of the arrangement through the use of a written engagement
letter
b. Knowing when your client is about to fire your firm beforehand
c. Carefully selecting which clients to accept and retain
d. Evaluation of a firm’s capacity to adequately perform services for a specific client
17. There are various professional requirements for CPA firms to help assure audit quality.
These requirements potentially minimize the exposure of public accounting firms and
partners to lawsuits. These requirements include
a. Auditor independence requirements
b. Quality control programs
c. Review programs
d. All of the above
18. The failure of the auditor to meet PSAs
a. An accepted practice
b. A suggestion of negligence
c. An evidence of negligence
d. Tantamount to criminal behavior
19. An example of breach of contract would likely include:
a. An auditor’s refusal to return the client’s general ledger book until the client paid
last year’s audit fees.
b. A bank’s claim that an auditor had a duty to uncover material errors in financial
statements that had been relied on in making a loan.
c. A CPA firm’s failure to complete an audit on the agreed-upon date because the firm
had a backlog of other work which was more lucrative.
d. An auditor’s claim that the client staff is unqualified
20. In connection with the audit of financial statements, an independent auditor could be
responsible for failure to detect a material fraud if:
a. Statistical sampling techniques were not used on the audit engagement
b. The auditor planned the audit in a negligent manner
c. Accountants performing important parts of the work failed to discover a close
relationship between the treasurer and the cashier
d. The fraud was perpetrated by one employee who circumvent the existing internal
controls
21. To succeed in an action against the auditor, the client must be able to show that:
a. The auditor was fraudulent
b. The auditor was grossly negligent
c. There was a written contract
d. There is a close causal connection between the auditor’s behavior and the damages
suffered by the client
22. As a consequence of his failure to adhere to generally accepted auditing standards in
the course of his examination of the Lamp Corp,. Harrison, CPA, did not detect the
embezzlement of a material amount of funds by the company’s controller. As a matter
of common law, to what extent would Harrison be liable to the Lamp Corp. for losses
attributable to the theft?
a. He would have no liability, since the ordinary examination cannot be relied upon to
detect thefts of assets by employees.
b. He would have no liability because privity of contract is lacking.
c. He would be liable for losses attributable to his negligence.
d. He would be liable only if it could be proven that he was grossly negligent.
23. Which of the following if present, would support a finding of constructive fraud on the
part of the CPA?
a. Privity of contract
b. Intent to deceive
c. Reckless disregard
d. Ordinary negligence
24. Which of the following statement(s) is (are) true?
a. Gross negligence may constitute constructive fraud
b. Constructive fraud is also termed reckless
c. Fraud requires the intent to deceive
d. All of the following are true
25. The limitation of an auditor’s liability under contract law is known as
a. Privity of contract
b. Contributory liability
c. Statutory liability
d. Common law liability