Quality Control & Engagement Strategy

Question 1

What are the 6 statements/elements of quality controls for CPA firms to follow?

Answer 1

1. Human Resources
2. Ethical requirements
3. Acceptance and continuance of client
4. Leadership responsibilities for quality
5. Monitoring
6. Engagement Performance (Quality)

Question 2

What 2 “human resources” policies provides reasonable assurance?

Answer 2

1. employees are competent (adequately trained)
2. employees selcted for advancement are qualified

Question 3

What “ethical requirements” policy provides reasonable assurance?

Answer 3

1. firm complies with independence, integrity and objectivity

Question 4

What 2 “acceptance and continuance of client” policies provides reasonable assurance?

Answer 4

1. firm has resources/competence to perform engagement
2. firm does not associate with clients who lack integrity

Question 5

What “leadership responsibilities for quality” policy provides reasonable assurance?

Answer 5

1. person(s) with responsibility for quality control has sufficient and appropriate experience and authority

Question 6

What “monitoring” policy provides reasonable assurance?

Answer 6

1. firm policies are relevant, adequate and operating effectively

Question 7

What 2 “engagement performance (quality)” policies provides reasonable assurance?

Answer 7

1. engagements meet professional/quality standards and legal and regulatory requirements (ie. GAAS (generally accepted auditing standards))
2. engagements are adequately supervised

Question 8

CPA firms quality control objectives are:

Answer 8

to provide reasonable assurance that the firm complies with professional standards and legal and regulatory requirements
issues appropriate reports

Question 9

quality control standards are influenced by what 4 components of a CPA firm?

Answer 9

1. size (small-partner directly supervises; large–parnter relies on manager/supervisor)
2. nature of practice (issuers–PCAOB vs nonissuers–AICPA)
3. cost-benefit considerations (review of sample of engagements, rather than all)
4. organization structure (apart of network or stand alone; multiple locations or management levels)

Question 10

one objective of audit is:

Answer 10

to express an opinion on whether F/S complied with GAAP
to issue an opinion on the F/S at the balance sheet date

Question 11

what are analytical procedures?

Answer 11

audit procedures for which an auditor develops an expectation based on their knowledge of the entity and its industry

Question 12

At what 3 different times during an audit are analytical procedures typically performed?

Answer 12

1. during planning (required): used as risk assessment procedure
2. substantive testing (optional): the data used should be reliable and precise enough to provide the desired level of assurance
3. the overall review (required)

Question 13

what are analytical procedures used for?

Answer 13

to gather evidence with respect to relationships among various accounting and non-accounting data

think comparisons of recorded amounts to expectations developed by auditor

Question 14

what is the audit program?

Answer 14

step-by-step list of audit procedures that describes the nature, timing and extent of:
1. risk assessment procedures sufficient to assess the RMM (test of controls)
2. further audit procedures at the relevant assertion level for each material class of
transactions, account balances and disclosures
3. other procedures needed to comply with GAAS (use of specialists)

Question 15

what should auditors consider before the audit program can be finalized?

Answer 15

materiality
RMM
business and industry factors

Question 16

when designing a written audit program, an auditor must establish…

Answer 16

specific audit procedures that relate primarily to management’s assertions on the F/S

Question 17

when auditors consider reducing the level of control risk (CR) they perform…

Answer 17

test of controls (TOC)

Question 18

if TOC is considered effective, auditors can…

Answer 18

reduce CR and limit amount of additional substantive testing

Question 19

unreliable controls _____ RRM:
CR is _______

Answer 19

increase; high

Question 20

reliable controls _______ RRM:
CR is ______

Answer 20

reduce; low

Question 21

what is the audit program?

Answer 21

step-by-step list of audit procedures that describes the nature, timing and extent of
1. risk assessment procedures sufficient to assess the RMM (test of controls)
2. further audit procedures at the relevant assertion level for each material class of
transactions, account balances and disclosures
3. other procedures needed to comply with GAAS (use of specialists)

Question 22

auditors will consider which three factors before the audit program can be finalized?

Answer 22

materiality
RMM
business and industry factors

Question 23

when auditors consider reducing the level of control risk (CR) they perform….

Answer 23

test of controls

Question 24

if test of controls (TOC) is considered effective…ineffective…

Answer 24

auditors can reduce CR and limit amount of additional substantive testing
reliable controls reduce RMM

unreliable controls increase RMM: CR is high

Question 25

GAAS engagement quality review documentation includes:

Answer 25

1. review date
2. provides evidence the firm’s engagement quality control procedures were performed
3. provides evidence that the reviewer is unaware of unresolved or inappropriate judgments or conclusions

Question 26

what are the overarching concepts behind the use of analytical procedures?

Answer 26

-incorporate the study of financial ratios and the investigation of unusual fluctuations
-assume plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary
-numbers should be based on reliable data generated by a system with adequate controls

Question 27

Analytical procedures in reviews are used to

Answer 27

Evaluate relationships among financial and non-financial data to identify abnormal relationships that suggest financial statements may be misstated

Question 28

Analytical procedures in audits

Answer 28

search for statements