AUDIT P QUESTIONS

Question 1

A professional accountant who does not consider and apply the guidance included in a relevant practice statement should be prepared to

a. Explain how the basic principles and essential procedures in the engagement standards addressed by the practice statements have been complied with

b. Explain to the Board of Accountancy why the practice statement was not complied with

c. Bear the consequences of such non-compliance, such as suspension or revocation of license plus imprisonment of jot more than two (2) years

d. Face the stockholders of the entity and explain in the meeting why such practice statement was not complied with provided that the explanation is also put in writing, and signed in the presence of the Chairperson of AASC.

Answer 1

a. Explain how the basic principles and essential procedures in the engagement standards addressed by the practice statements have been complied with

Question 2

A basic objective of a CPA firm is to provide professional services that conform or comply with professional standards and regulatory and legal requirements so that the reports issued by the firm are appropriate in the circumstances. Reasonable assurance of achieving this basic objective is provided through policies and procedures on:

a. continuing professional education.

b. compliance with generally accepted reporting standards.

c. a system of quality control.

d. a system of peer review.

Answer 2

c. a system of quality control.

Question 3

Statement 1: PSQC 1 deals with a firm’s responsibilities for its system of quality control and applies to all firms of professional accountants in respect of the audit of historical financial information only.

Statement 2: PSA 220 deals with the specific responsibilities of the auditor regarding quality control procedures and engagement quality control reviewer (EQCR) for all assurance engagements and related services.

a. True, true

b. True, false

c. False, true

d. False, false

Answer 3

d. False, false

Question 4

The nature and extent of a CPA firm’s quality control policies and procedures depend on

• The CPA firm’s size
• The nature of the CPA firm’s practice
• Cost-benefit considerations

a. Yes Yes Yes

b. Yes Yes No

c. Yes No Yes

d. No No Yes

Answer 4

a. Yes Yes Yes

Question 5

Control policies and procedures are designed to ensure that all audits are conducted in accordance with PSA’s 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.

Answer 5

d. Both at the audit firm level and on individual audits.

Question 6

Which of the following is not an element of quality control as defined by Philippine Standards on Quality Control 1?

a. Leadership responsibility for the quality

b. Independence

c. Human resources

d. Acceptance and continuance of engagement and client relationship

Answer 6

b. Independence

Question 7

Which of the following is not an essential component or element of a system of quality control?

a. Policies and procedures to ensure that the work performed by firm personnel meet applicable professional standards.

b. Policies to ensure that personnel maintain their independence in fact and in appearance.

c. Policies that ensure that monitoring activities are effectively applied.

d. Policies and procedures to ensure that firm personnel are actively engaged in marketing strategies.

Answer 7

d. Policies and procedures to ensure that firm personnel are actively engaged in marketing strategies.

Question 8

The firm should establish policies and procedures designed to promote an internal culture based on the recognition that quality is essential in performing engagements. Such policies and procedures should require the firm’s chief executive officer (or equivalent) or, if appropriate, the firm’s managing board of partners (or equivalent), to assume ultimate responsibility for the firm’s system of quality control.

a. Ethical requirements

b. Monitoring

c. Human resources

d. Leadership responsibilities for quality within the firm

Answer 8

d. Leadership responsibilities for quality within the firm

Question 9

Who should take responsibility for the overall quality on each audit engagement?

a. Engagement quality control review

b. Engagement partner

c. Engagement team

d. CEO of the firm or managing board of partners

Answer 9

b. Engagement partner

Question 10

Who should take responsibility for the overall quality on each audit engagement?

a. Engagement quality control review

b. Engagement partner

c. Engagement team

d. CEO of the firm or managing board of partners

Answer 10

c. Engagement team

Question 11

An engagement quality control review is required for all completed audit engagements.

Answer 11

False

Question 12

Promotion of a culture of quality is related to the element of monitoring.

Answer 12

True

Question 13

Quality controls are policies and procedures adopted by a firm to provide a reasonable assurance that the audits done by the firm is being carried out in accordance with the objective and general principles governing an audit of financial statements.

Answer 13

True

Question 14

The primary purpose of establishing quality control policies and procedures for deciding whether to accept or reject a new client is to minimize the likelihood of a firm associating with clients whose management lacks integrity.

Answer 14

True

Question 15

The audit work performed by assistants should be reviewed to determine whether it was adequately formed and to evaluate whether the results are consistent with the conclusions to be presented in the auditor’s report.

Answer 15

False

Question 16

The Philippine Standards on Quality Control (PSCQs) are to be applied to all services that fall under the AASC’s engagement standards.

Answer 16

False

Question 17

In reviewing the audit work performed, the engagement partner need not review all audit documentation, but may do so.

Answer 17

True

Question 18

An engagement quality control review ordinarily involves discussion with the engagement partner, a review of the financial statements or other subject matter information and the report, and, in particular, consideration of whether the report is appropriate.

Answer 18

True

Question 19

The firm should obtain written confirmation of compliance with its policies and procedures on independence from all firm personnel required to be independent by relevant ethical requirements at least annually.

Answer 19

True

Question 20

The review conducted by the quality control reviewer reduces the responsibilities of the engagement partner.

Answer 20

True

Question 21

The main purpose of implementing quality control policies and procedures is

a. To have a favorable peer review.

b. To comply with the regulatory agency.

c. To standardize the policies and procedures of the audit firm.

d. To provide reasonable assurance that audit will be conducted in accordance with PSA.

Answer 21

c. To standardise the policies and procedures of the audit firm.

Question 22

The firm’s system of quality control should include policies and procedures that address each of the following, except

a. Control environment.

b. Human resources.

c. Relevant ethical requirements.

d. Monitoring.

Answer 22

a. Control Environment

Question 23

In pursuing a firm’s quality control objectives, a firm 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 the engagement. Which quality control element would this be most likely to satisfy

a. Ethical requirements

b. Human resources

c. Monitoring

d. Leadership responsibilities for quality within the firm

Answer 23

a. Ethical requirements

Question 24

PSQC 1 applies to both assurance and non-assurance services.

PSA 220 applies to both audit and review of financial statements.

a. True, true

b. True, false

c. False, true

d. False, false

Answer 24

d. False, false

Question 25

The auditor is most likely to discover omitted audit procedures during a. Preparation of the management letter. b. Follow-up procedures performed in compliance with generally accepted auditing standards. c. The conference held with the client prior to issuing the audit report. d. A post engagement review performed as part of the firm's quality control inspection program.

Answer 25

b. Follow-up procedures performed in compliance with generally accepted auditing standards

Question 26

A requirement that working papers be reviewed by the supervision, and any deficiencies be discussed with the preparer is an example of a quality control procedure in the area of a. Acceptance and continuance of client relationships and specific engagements. b. Human resources. c. Relevant ethical requirements. d. Engagement performance.

Answer 26

d. Engagement Performance

Question 27

The objective of quality control mandates that a public accounting firm should establish policies and procedures for professional development which provide reasonable assurance that all entry-level personnel a. Prepare working papers which are standardized in form and content. b. Have the knowledge required to enable them to fulfill responsibilities assigned. c. Will advance within the organization. d. Develop specialties in specific areas of public accounting.

Answer 27

b. have the knowledge required to enable to fullfill responsilities assiged

Question 28

In pursuing a firm's quality control objectives, a firm should adopt policies and procedures to enable it to identify and evaluate circumstances and relationships that create threats or reduce them to an acceptable level by applying safeguards, or, if considered appropriate, to withdraw from the engagement. Which quality control element would be most likely to satisfy? a. Monitoring. b. Ethical requirements c. Human resources d. Acceptance and continuance of client relationships.

Answer 28

c. Human resources

Question 29

Maintaining or providing access to adequate reference libraries and other authoritative sources is a procedure that is most likely performed to comply with the policy on a.Assignment. C. Maonitoring b. Consultation. d. Supervision.

Answer 29

d. Supervision

Question 30

The work performed by the assistants should be reviewed by personnel of at least equal competence to consider all of the following, except: a. The objectives of the audit have been achieved. b. The work was adequately performed and documented. c. The conclusions expressed are consistent with the results of the work performed. d. The engagement personnel maintained independence in the performance of the examination.

Question 31

Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the Philippines? a. Professional accountants refer to persons who are Certified Public Accountants (CPA) and who hold a valid certificate issued by the Board of Accountancy. b. Where a national statutory requirement is in conflict with a provision of the IFAC Code, the IFAC Code requirement prevails. c. The Code of Ethics for Professional Accountants in the Philippines is mandatory for all CPAs and is applicable to professional services performed in the Philippines on or after January 1, 2004. d. Professional accountants should consider the ethical requirements as the basic principles which they should follow in performing their work.

Answer 31

b. Where a national statutory requirement is in conflict with a provision of the IFAC Code, the IFAC Code requirement prevails.

Question 32

Which statement is correct regarding the Code of Ethics for Professional Accountants in the Philippines? a. Professional accountants refer to persons who are Certified Public Accountants (CPA) in public practice and who hold a valid certificate issued by the Board of Accountancy. b. It is practical to establish ethical requirements which apply to all situations and circumstances that professional accountants may encounter. c. Professional accountants should consider the ethical requirements as the ideal principles which they should follow in performing their work. d. All CPAs are expected to comply with the ethical requirements of the Code and other ethical requirements that may be adopted and approved by IFAC. Apparent failure to do so may result in an investigation into the CPA’s conduct.

Answer 32

d. All CPAs are expected to comply with the ethical requirements of the Code and other ethical requirements that may be adopted and approved by IFAC. Apparent failure to do so may result in an investigation into the CPA’s conduct.

Question 33

Control activities constitute one of the five components of internal control. Control activities do not encompass: a. An internal audit functions b. Information processing c. Performance reviews d. Physical controls and authorization procedures

Answer 33

a. An internal audit functions

Question 34

A CPA, while performing an audit, strive to achieve independence in appearance in order to a. Comply with the generally accepted standards of field work b. Reduce risk and liability c. Maintain public confidence in the profession

Answer 34

c. Maintain public confidence in the profession

Question 35

Analytical procedures are those that a. Analyze the effect of management procedures on the accounting system b. Review the effectiveness of internal control procedures c. Evaluate the accuracy of the account balances d. Assess the overall reasonableness of transactions and balances

Answer 35

d. Assess the overall reasonableness of transactions and balances

Question 36

Which of the following is not one of the levels of an absence of internal controls? a. Significant deficiency b. Material weakness c. Major deficiency

Answer 36

c. Major deficiency

Question 37

Which of the following statements is not correct? a. Given equal amounts fraud is usually considered more important than errors b. The most important base used as the criterion for deciding materiality is total assets c. Qualitative factors, as well as quantitative factors, affect materiality d. Materiality is a relative rather than an absolute concept

Answer 37

b. The most important base used as the criterion for deciding materiality is total assets

Question 38

The audit engagement documents should be retained: a. No shorter than 5 years from the date of audit report b. No longer than 7 years from the date of audit report c. No shorter than 7 years from the date of audit report d. No longer than 5 years from the date of audit report

Answer 38

c. No shorter than 7 years from the date of audit report

Question 39

. A CPA firm's quality control procedures pertaining to the acceptance of a prospective audit client would most likely include: a. Consideration of whether sufficient competent evidential matter may be obtained to afford a reasonable basis for an opinion. b. Inquiry of third parties, such as the prospective client's bankers and attorneys about information regarding the prospective client and its management c. Inquiry of management as to whether disagreements between the processor auditor and the prospective chest were resolved satisfactorily d. Consideration of whether the internal control structure is sufficiently effective to permit a reduction in the required substantive tests.

Answer 39

b. Inquiry of third parties, such as the prospective client's bankers and attorneys about information regarding the prospective client and is management