AUD 1.5 -- Quality Control Flashcards
The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the:
A. Audit procedures performed are approved in the professional standards.
B. Audit has been performed by persons having appropriate competence and capabilities.
C. Results are consistent with the conclusions to be presented in the auditor’s report.
D. Auditor’s system of quality control has been maintained at a high level.
Answer (C) is correct.
According to AU-C 220, QC 10, and AS 1201, a review considers whether, for example, (1) the work supports the conclusions and is properly documented, (2) the evidence is sufficient and appropriate to support the auditor’s report, and (3) the objectives of the procedures have been achieved.
Quality control policies and procedures should be relevant, adequate, effective, and complied with. This statement is most closely associated with the quality control element of:
A. Review.
B. Monitoring.
C. Relevant ethical requirements.
D. Supervision
Answer (B) is correct.
Monitoring provides reasonable assurance that policies and procedures related to the system of quality control are relevant, adequate, operating effectively, and complied with. The objectives of monitoring these policies and procedures are to evaluate (1) compliance with professional standards and legal requirements, (2) the design and effectiveness of the quality control system, and (3) whether appropriate reports are issued (QC 10).
Which of the following is another name for one of the elements of a system of quality control?
A. System review.
B. Tone at the top.
C. A practice-monitoring program.
D. Peer review.
Answer (B) is correct.
Leadership responsibilities for quality within the firm (also known as “tone at the top”) is one of the six elements of a system of quality control.
Which of the following is a necessary part of the practice-monitoring requirement for AICPA membership?
A. Second partner review.
B. Peer review.
C. Engagement performance.
D. Relevant ethical requirements.
Answer (B) is correct.
A peer review is a necessary part of the practice-monitoring requirement for AICPA membership.
In pursuing a CPA firm’s quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm’s clients. Which quality control element is this procedure most likely to satisfy?
A. Relevant ethical requirements.
B. Experience requirements.
C. Professional relationship.
D. Advancement.
Answer (A) is correct.
CPA firms should avoid situations in which third parties might question the firm’s independence. Thus, they should adhere to the independence and other principles established by the AICPA Code of Professional Conduct and the requirements of regulators and other authorities (QC 10).
With regard to assignment of personnel to an engagement team, a CPA firm’s policies and procedures should include:
A. Designating senior qualified personnel to provide advice on accounting or auditing questions throughout the engagement.
B. Requiring auditing personnel to have current accounting and auditing literature available for research and reference purposes throughout the engagement.
C. Consideration of the team’s understanding of similar engagements through training and participation.
D. Promoting a culture based on the recognition that quality is essential in performing engagements.
Answer (C) is correct.
The quality control element of human resources requires assignment of appropriate personnel with the competence and capabilities to (1) perform engagements in accordance with professional standards and legal and regulatory requirements and (2) enable the firm to issue appropriate reports. The determination of team assignments and levels of supervision includes considering the team’s understanding of similar engagements through appropriate training and practical experience.
One purpose of establishing quality control policies and procedures for deciding whether to accept new clients is to:
A. Identify noncompliance with laws and regulations that may affect the financial statements.
B. Monitor significant deficiencies in the design and operation of the client’s internal control.
C. Provide reasonable assurance that personnel will be adequately trained to fulfill their assigned responsibilities.
D. Provide reasonable assurance that the firm has the resources to undertake new engagements.
Answer (D) is correct.
CPA firms should have policies and procedures to determine whether to accept or continue a client or to perform a specific engagement. The firm’s policies and procedures should provide reasonable assurance that it (1) has considered the integrity of the client and the risks involved, (2) is competent, (3) has the necessary capabilities and resources, and (4) is able to comply with applicable requirements (QC 10).
The purpose of establishing quality control policies and procedures for deciding whether to accept or continue a client relationship is to:
A. Minimize the likelihood of associating with clients whose management lacks integrity.
B. Document the matters that are required to be communicated to the audit committee.
C. Provide reasonable assurance that personnel are adequately trained to fulfill their responsibilities.
D. Enhance the auditor’s understanding of the client’s business and its industry.
Answer (A) is correct.
The procedures pertaining to client acceptance or continuation should provide reasonable assurance that the likelihood of association with a client whose management lacks integrity is minimized. They include consideration of the business reputation of the client’s principal owners, key management, and those charged with governance.
Answer (C) is incorrect.
The human resources element of quality control should provide reasonable assurance that personnel will be adequately trained to fulfill their responsibilities.
Which of the following is an element of a CPA firm’s quality control system that should be considered in establishing its quality control policies and procedures?
A. Considering audit risk and materiality.
B. Complying with laws and regulations.
C. Using statistical sampling techniques.
D. Managing human resources.
Answer (D) is correct.
The quality control element of human resources requires establishment of policies and procedures to provide reasonable assurance that only qualified persons with the required technical training and proficiency perform the work.
Answer (B) is incorrect.
The auditor considers compliance with laws and regulations. However, this consideration is not an element of quality control.
The in-charge auditor for an audit of an issuer most likely has a supervisory responsibility to explain to the staff assistants:
A. That immaterial fraud is not to be reported to the client’s audit committee.
B. Why certain documents are being transferred from the current file to the permanent file.
C. What benefits may be attained by the assistants’ adherence to established time budgets.
D. How the results of various auditing procedures performed by the assistants should be evaluated.
Answer (D) is correct.
Assistants should be informed of their responsibilities and the objectives of the work they are to perform. They should be informed about the matters that affect the nature, timing, and extent of procedures, including how the results of tests should be evaluated (AS 1201).
Answer (C) is incorrect.
Discussion of time budgets is not a responsibility under the auditing standards.
Which of the following is an element of a CPA firm’s quality control policies and procedures applicable to the firm’s accounting and auditing practice?
A. Information processing.
B. Engagement performance.
C. Risk analysis.
D. Safeguarding of assets.
Answer (B) is correct.
Policies and procedures should be established to provide reasonable assurance that engagements are consistently performed in accordance with professional standards and legal requirements and that the firm issues appropriate reports. Matters addressed include responsibilities for consistency of performance, supervision, and review.
Answer (A) is incorrect.
An auditor must obtain an understanding of the components of an entity’s internal control, including the information system and the related processes relevant to financial reporting and communication. But information processing is not an element of quality control.
With regard to assignment of personnel to an engagement team, a CPA firm’s policies and procedures should include:
A. Consideration of the team’s understanding of similar engagements through training and participation.
B. Promoting a culture based on the recognition that quality is essential in performing engagements.
C. Requiring auditing personnel to have current accounting and auditing literature available for research and reference purposes throughout the engagement.
D. Designating senior qualified personnel to provide advice on accounting or auditing questions throughout the engagement.
Answer (A) is correct.
The quality control element of human resources requires assignment of appropriate personnel with the competence and capabilities to (1) perform engagements in accordance with professional standards and legal and regulatory requirements and (2) enable the firm to issue appropriate reports. The determination of team assignments and levels of supervision includes considering the team’s understanding of similar engagements through appropriate training and practical experience.
Answer (B) is incorrect.
Promoting a culture based on the recognition that quality is essential in performing engagements relates to the element of leadership responsibilities for quality within the firm.
Answer (C) is incorrect.
Requiring auditing personnel to have current accounting and auditing literature available for research and reference purposes throughout the engagement relates to the quality control element of engagement performance.
Answer (D) is incorrect.
Designating senior qualified personnel to provide advice on accounting or auditing questions throughout the engagement relates to the quality control element of engagement performance.
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. Document the details of the disagreement with the conclusion reached.
B. Discuss the disagreement with the entity’s management or its audit committee.
C. Refer the disagreement to the AICPA’s Peer Review Board.
D. Report the disagreement to an impartial peer review monitoring team.
Answer (A) is correct.
According to AU-C 220 and QC 10, differences of opinion (1) within the engagement team, (2) with a consultant, or (3) between the engagement partner and the quality control reviewer should be resolved by following the firm’s related policies and procedures. A member of the engagement team should be able to document his or her disagreement with the conclusions reached after appropriate consultation. Moreover, (1) conclusions should be documented and implemented, and (2) the report should be released only after resolution of the matter. According to AS 1201, in applying due professional care, each engagement team member has a responsibility to bring to the attention of appropriate persons any disagreements or concerns about accounting and auditing issues that (s)he believes are significant to the statements or the report regardless of how they may have arisen. The PCAOB’s AS 1215 requires documentation of disagreements among members of the engagement team or with consultants about final conclusions on significant accounting or auditing matters.
In pursuing a CPA firm’s quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm’s clients. Which quality control element is this procedure most likely to satisfy?
A. Advancement.
B. Relevant ethical requirements.
C. Experience requirements.
D. Professional relationship.
Answer (B) is correct.
CPA firms should avoid situations in which third parties might question the firm’s independence. Thus, they should adhere to the independence and other principles established by the AICPA Code of Professional Conduct and the requirements of regulators and other authorities (QC 10).
Quality control for a CPA firm, as referred to in Statements on Quality Control Standards (SQCS), applies to:
A. Auditing and tax services.
B. Auditing and consulting services.
C. Auditing services only.
D. Auditing and accounting and review services.
Answer (D) is correct.
According to QC 10, quality control for a CPA firm applies to all audit, attest, accounting and review, and other services for which professional standards have been established by the ASB and the Accounting and Review Services Committee. The SQCS therefore do not apply to compliance with standards for consulting services and tax services, which are issued by different AICPA technical committees.
