II. Financial Statement Audits - Quality Control Standards (SQCS)

Question 1

Which of the following actions should a CPA firm take to comply with the AICPA’s quality control standards?

Answer 1

Establish policies to ensure that the audit work meets applicable professional standards.

Note: The AICPA’s quality control standards are applicable to the CPA firm’s portfolio of audit (and other financial statement related) services,

Question 2

A CPA firm would be reasonably assured of meeting its responsibility to provide services that conform with professional standards by

Answer 2

Having an appropriate system of quality control.

Note: A firm is required to establish an appropriate system of quality control to provide reasonable assurance of conforming with professional standards.

Question 3

The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to

Answer 3

Quality control policies and procedures governing new client acceptance are established to minimize the likelihood of association with a client whose management lacks integrity.

Note: A firm should be selective in determining its professional relationships.

Question 4

One of a CPA’s firm’s basic objectives is to provide professional services that conform to professional standards.

Reasonable assurance of achieving this basic objective is provided through

Answer 4

A system of quality control.

Question 5

***Which of the following activities would be most helpful to a CPA in deciding whether to accept a new audit client?

Answer 5

Evaluating the CPA’s ability to properly service the client.

The AICPA’s Statements on Quality Control Standards emphasize four specific issues in making client acceptance/continuance decisions:

(1) the integrity of management and those charged with governance;

(2) the competence of the engagement team (including time and resources);

(3) compliance with relevant ethical requirements (such as independence); and
(4) significant issues from prior engagements that affect the continuing relationship. Evaluating the CPA’s ability to properly service the client is associated with the competence of the engagement team, which is identified as an important consideration.

Question 6

***How should differences of opinion between the engagement partner and the quality control reviewer be resolved?

Answer 6

Differences of opinion between the engagement partner and the quality control reviewer should be resolved using the firm’s established policies and procedures.

Question 7

Quality control policies and procedures that are established to decide whether to accept a new client should provide the CPA firm with reasonable assurance that

Answer 7

The likelihood of associating with clients whose management lacks integrity is minimized.

Question 8

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

Answer 8

Document the details of the disagreement with the conclusion reached.

Question 9

In connection with the element of monitoring, a CPA firm’s system of quality control should ordinarily provide for the maintenance of

Answer 9

provides for maintenance of documentation of the various quality control policies and procedures—it is all encompassing.

Question 10

What are the ELEMENTS of quality control?

Answer 10

• Acceptance and continuance of client relationships and specific engagements.
• Human resources.
• Monitoring.
• Leadership responsibilities for quality within the firm
• Relevant ethical requirements;

Note: Internal Control is not

Question 11

One of the objectives of the human resources element quality control mandates that a public accounting firm should establish policies and procedures for recruitment processes which provide reasonable assurance that all personnel

Answer 11

Perform engagements in accordance with professional standards.

Question 12

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

Answer 12

Yes

Yes

Yes

Question 13

A basic objective of a CPA firm is to provide professional services to conform with professional standards. Reasonable assurance of achieving this basic objective is provided through

Answer 13

A system of quality control is necessary to provide a CPA firm with reasonable assurance that it is conforming to generally accepted auditing standards.

Question 14

Within the context of quality control, a p_rimary purpose of the engagement performance_ element is to help ensure that

Answer 14

Engagements are adequately supervised.

Question 15

***After fieldwork audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up working paper review. This second review usually focuses on

Answer 15

This second or “cold” review aims at determining whether the financial statements result in fair presentation in conformity with GAAP and with whether sufficient appropriate evidence has been obtained.

Question 16

One purpose of establishing quality control policies and procedures for acceptance and continuance of client relationships and specific engagements is to

Answer 16

Quality control standards indicate that a primary purpose is to help insure that the firm is competent to perform any engagements that are accepted.

Question 17

Which of the following actions should a CPA firm take to comply with the AICPA’s quality control standards?

Answer 17

Establish policies to ensure that the audit work meets applicable professional standards.

Note:

Establish policies to ensure that the audit work meets applicable professional standards.