Quality Control Policies and Procedures

Question 1

A system of quality control consists of:

Answer 1

1. policies designed to achieve the objectives of quality control
2. procedures necessary to implement and monitor compliance with those policies

Question 2

The firm shall design a system of quality control designed to provide it with reasonable assurance that:

Answer 2

the firm and its personnel comply with professional standards and regulatory and legal requirements, and that reports issued by the firm or engagement partners are appropriate in the circumstances

Question 3

A system of quality control is established and implemented to ensure:

Answer 3

to ensure that a public accounting firm adheres to the standards of the accounting profession.

Question 4

A quality control system is:

Answer 4

a set of policies and procedures designed to provide reasonable assurance that the
public accounting firm complies with professional standards.

Question 5

A quality control system is:

Answer 5

a set of policies and procedures designed to provide reasonable assurance that the
public accounting firm complies with professional standards.

Question 6

Nature and extent of quality control procedures depend on factors such as:

Answer 6

1.Its size and nature of its policies
2.Degree of operating autonomy allowed to its personnel
3.The nature of its practice
4.Its organization
5.Its geographic dispersion
6.Appropriate cost/benefit consideration

Question 7

What are the six elements of quality control?

Answer 7

1. Leadership Responsibilities for Quality within the firm
   2.RelevantEthical Requirements
2. Acceptance and Continuance of Client Relationships and Specific Engagements
3. Human Resources
4. Engagement performance
5. Monitoring

Question 8

What element of a system of quality control is required to to promote an internal culture based on the recognition that quality is essential in performing engagements?

Answer 8

Leadership Responsibilities for Quality within the firm

Question 9

Who assumes ultimate responsibility for the firm’s system of quality control?

Answer 9

Firm’s chief executive officer (or equivalent) or, if appropriate, the firm’s managing board of partners (or equivalent)

Question 9

Who assumes ultimate responsibility for the firm’s system of quality control?

Answer 9

Firm’s chief executive officer (or equivalent) or, if appropriate, the firm’s managing board of partners (or equivalent)

Question 10

What element of a system of quality control is required to provide the firm with reasonable assurance that the firm and its personnel comply with relevant ethical requirements?

Answer 10

Ethical Requirements

Question 11

The revised code of ethics for professional accountants in the Philippines establishes the fundamental principles of professional ethics include:

Answer 11

o Professional Competence and Due Care
o Integrity
o Confidentiality
o Professional Behavior
o Objectivity
MNEMONICS: PICPO

Question 12

Firm’s policies and procedures emphasize the fundamental principles, which are reinforced in particular by:

Answer 12

o The leadership of the firm
o Education and training
o A process for dealing with noncompliance
o Monitoring

MNEMONICS: TEAM

Question 13

What element of a system of quality control requires the firm to provide it with reasonable assurance that it will only undertake or continue relationships and engagements where it:
o Is competent to perform the engagement and has the capabilities, time, and resources to do so; and
o Can comply with ethical requirements
o Has considered the integrity of the client and does not have information that would lead it to conclude that the client lacks integrity.

Answer 13

Acceptance and Continuance of Client Relationships and Specific Engagements

Question 14

A firm should only undertake or continue relationships and engagements where there is the presence of:

Answer 14

1. Integrity of the client’s management
2. Competence, capabilities, time and resources for the firm to do so
3. Ethical requirements compliance

MNEMONICS: ICE

Question 15

If a potential conflict of interest is identified in accepting an engagement from a new or an existing client,

Answer 15

the firm should determine whether it is appropriate to accept the
engagement.

Question 16

Where issues have been identified and the firm decides to accept or continue the client relationship or a specific engagement,

Answer 16

it should document how the issues were
resolved.

Question 17

In considering whether the firm has the capabilities, competence, time, and resources to undertake a new engagement from a new or existing client, the firm reviews the specific requirements of the engagement and existing partner and staff profiles at all
relevant levels. Matters the firm considers include whether:

Answer 17

o Firm personnel have knowledge of relevant industries or subject matter.
o Firm personnel have experience with relevant regulatory or reporting requirements, or the ability to gain the necessary skills and knowledge effectively.
o The firm has sufficient personnel with the necessary capabilities and
competence.
o Experts are available, if needed
o Individuals are meeting the criteria and eligibility requirements to perform engagement quality control review are available, where applicable; and
o The firm is able to complete the engagement within the reporting deadline

Question 18

Where the firm obtains information that would have caused it to decline an engagement if that information had been available earlier, policies and procedures on the continuance of the engagement and the client relationship shall include consideration of:

Answer 18

o The professional and legal responsibilities that apply to the circumstances, including whether there is a requirement for the firm to report to the person or persons who made the appointment or, in some cases, to some regulatory authorities; and
o The possibility of withdrawing from the engagement or from both the engagement and the client relationship

Question 19

What element of a system of quality control is required to provide the firm with with reasonable assurance that it has sufficient personnel with the capabilities, competence, and commitment to ethical principles necessary?

Answer 19

Human Resources

Question 20

The firm shall establish policies and procedures designed to provide it with reasonable assurance that it has sufficient personnel with the capabilities, competence, and commitment to ethical principles necessary:

Answer 20

o To perform its engagements in accordance with professional standards and regulatory and legal requirements;
o To enable the firm or engagement partners to issue reports that are appropriate in the circumstances

Question 21

Such policies and procedures address the following personnel issues:

Answer 21

o Capabilities
o Competence
o Career Development
o Compensation
o Performance evaluation
o Promotion
o Recruitment
o Estimation of personnel needs

MNEMONICS: C4P2RE

Question 22

Capabilities and competence are developed through a variety of methods, including the following:

Answer 22

o Professional education
o Continuing Professional Development, including training
o Work experience
o Coaching by more experienced staff

Question 23

The firm’s performance evaluation, compensation and promotion procedures give due recognition and reward to the development and maintenance of competence and commitment to ethical principles. In particular:

Answer 23

o Makes personnel aware of the firm’s expectations regarding performance and ethical principles
o Provides personnel with evaluation of, and counselling on, performance, progress and career development; and
o Helps 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 firms policies and procedures may result in disciplinary action.

Question 24

The firm shall assign responsibility for each engagement to an engagement partner. The firm should establish policies and procedures requiring that:

Answer 24

▪ The identity and role of the engagement partner are communicated to key members of client management and those charged with governance;
▪ The engagement partner has the appropriate capabilities, competence, authority and time to perform the role; and
▪ The responsibilities of the engagement partner are clearly defined and communicated to that partner.

Question 25

o The firm shall also assign appropriate staff with the necessary capabilities, competence, and time

Answer 25

▪ To perform engagements in accordance with professional standards
and regulatory and legal requirements, and
▪ To enable the firm or engagement partners to issue reports that are
appropriate in the circumstances

Question 26

Capabilities and competence considered when assigning engagement teams:

Answer 26

o An understanding of, and practical experience with, engagements of a similar nature and complexity through appropriate training and participation
o An understanding of professional standards and regulatory and legal requirements.
o Appropriate technical knowledge, including knowledge of relevant information technology.
o Knowledge of relevant industries in which the clients operate.
o Ability to apply professional judgment.
o An understanding of the firm’s quality control policies and procedures

Question 27

What element of a system of quality control is required to provide the firm with reasonable assurance that engagements are performed in accordance with professional standards
and regulatory and legal requirements, and that the firm or the engagement partner issue reports that are appropriate in the circumstances?

Answer 27

Engagement performance

Question 28

The firm promotes consistency in the quality of engagement performance through its policies and procedures. Matters addressed may include:

Answer 28

o How engagement teams are briefed on the engagement to obtain an understanding of the objectives of their work.
o Processes for complying with applicable engagement standards
o Processes of engagement supervision, staff training, and coaching.
o Methods of reviewing the work performed, the significant judgments made and the form of report being issued
o Appropriate documentation of the work performed and of the timing and extent of the review.
o Processes to keep policies and procedures current.

Question 29

Engagement supervision includes the following:

Answer 29

• Tracking the progress of the engagement.
• Considering the competence and capabilities of individual members of the engagement team, whether they have sufficient time to carry out their work, whether they understand their instructions and whether the work is being carried out in accordance with the planned approach to the engagement.
• Addressing significant matters arising during the engagement, considering their significance and modifying the planned approach appropriately; and
• Identifying matters for consultation or consideration by more experienced
engagement team members during the engagement.

Question 30

A review consists of consideration of whether:

Answer 30

• The work has been performed in accordance with professional standards and regulatory and legal requirements;
• Significant matters have been raised for further consideration;
• Appropriate consultations have taken place and the resulting conclusions have been documented and implemented;
• There is a need to revise the nature, timing and extent of work performed;
• The work performed supports the conclusions reached and is appropriately documented;
• The evidence obtained is sufficient and appropriate to support the report; and
• The objectives of the engagement procedures have been achieved.

Question 31

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 experts contracted by the firm and network firm personnel), maintain independence where required by the Philippine code.

Answer 31

Independence

Question 32

At least _________, the firm shall obtain written confirmation of compliance with its policies and procedures on independence from all firm personnel required to be independent by the Revised Code of Ethics for Professional Accountants in the
Philippines.

Answer 32

Annually

Question 33

What are the appropriate action upon receiving notice of breach of independence policies and procedures?

Answer 33

o Applying appropriate safeguards to eliminate the threats to independence or to reduce them to an acceptable level; or
o Withdrawing from the engagement.

Question 34

Familiarity threat may be created by using the same senior personnel on an assurance engagement over a long period of time. Accordingly, the firm should establish policies and procedures:

Answer 34

o 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
o Requiring, for audits of financial statements of listed entities, the rotation of engagement partner and the individuals responsible for engagement quality control review (5 years), and where applicable, others subject to rotation requirements, after a specified period in compliance with the Revised Code of Ethics for Professional Accountants in the Philippines

Question 35

For consultation, the firm shall establish policies and procedures designed to provide it with reasonable
assurance that:

Answer 35

o Appropriate consultation takes place on difficult or contentious matters;
o Sufficient resources are available to enable appropriate consultation to take place;
o The nature and scope of such consultations are documented; and
o Conclusions resulting from consultations are documented and implemented.

Question 36

The documentation of consultation is sufficiently complete and detailed to enable an understanding of:

Answer 36

o The issue on which consultation was sought; and
o The results of the consultation, including any decisions taken, the basis for those decisions and how they were implemented

Question 37

The firm shall establish policies and procedures for dealing with and resolving differences of opinion within the engagement team, with those consulted and, where applicable, between the engagement partner and the engagement quality control reviewer.

Answer 37

Differences of Opinion

Question 38

Such policies and procedures on differences of opinion shall require that:

Answer 38

o Conclusions reached be documented and implemented; and
o The report not be dated until the matter is resolved.

Question 39

The firm shall establish policies and procedures requiring, for appropriate engagements, and engagement quality control review that provides an objective evaluation of the significant judgments made by the engagement team and the conclusions reached in formulating the report.

Answer 39

Engagement Quality Control Review

Question 40

Such policies and procedures on engagement quality control review should:

Answer 40

o Require an engagement quality control review for all audits of financial statements of listed entities;
o Set out criteria against which all other audits and reviews of historical financial information, and other assurance and related services engagements should be evaluated to determine whether an engagement quality control review should be performed; and
o Require an engagement quality control review for all engagements meeting the criteria established in compliance with above paragraph.

Question 41

Entities to be subject to an engagement quality control review may include:

Answer 41

o The nature of the engagement, including the extent to which it involves a matter of public interest.
o The identification of unusual circumstances or risks in an engagement or class of engagements.
o Whether laws or regulations require an engagement quality control review.

Question 42

Engagement quality control review shall include:

Answer 42

o Review of the financial statements or other subject matter information and the proposed report;
o Review of SELECTED engagement documentation relating to significant judgments the engagement team made and the conclusions it reached;
o Discussion of significant matters with the engagement partner; and
o Evaluation of the conclusions reached in formulating the report and
consideration of whether the proposed report is appropriate.

MNEMONICS: R2DE

Question 43

For engagement quality control review, the firm shall establish policies and procedures setting out:

Answer 43

▪Nature, timing, and extent of an engagement quality control review;
▪ Criteria for the eligibility of engagement quality control reviewers; and
▪ Documentation requirements for an engagement quality control review.

MNEMONICS: NTEC-D

Question 44

Engagement quality control review involves:

Answer 44

Discussion with the engagement partner
Review of the financial statements or other subject matter information and the report
Consideration of whether the report is appropriate

MNEMONICS: DRC

Question 45

The firm’s policies and procedures are designed to maintain the objectivity of the engagement quality control reviewer. For example, the engagement quality control reviewer:

Answer 45

o Is not selected by the engagement partner;
o Does not otherwise participate in the engagement during the period of review;
o Does not make decisions for the engagement team; and
o Is not subject to other considerations that would threaten the reviewer’s
objectivity.

Question 46

The firm’s policies and procedures should address the appointment of engagement quality control reviewers and establish their eligibility through:

Answer 46

o The technical qualifications required to perform the role, including the necessary experience and authority; and
o The degree to which an engagement quality control reviewer can be consulted
on the engagement without compromising the reviewer’s objectivity.

Question 47

Policies and procedures on documentation of the engagement quality control review should require documentation that:

Answer 47

o The procedures required by the firm’s policies on engagement quality control review have been performed;
o The engagement quality control review has been completed before the report is issued; and
o The reviewer is not aware of any unresolved matters that would cause the reviewer to believe that significant judgments the engagement team made and the conclusions the reached were not appropriate.

Question 48

What element of a system of quality control is required to provide
the firm 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?

Answer 48

Monitoring