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Chapter 5: QUALITY CONTROLS

1. Policies and procedures established by the firm related to each of the following element are designe
element, except:
A. Acceptance and continuance of client relationships and specific engagements
B. Relevant quality requirements
C. Leadership responsibilities for quality within the firm
D. Engagement performance

2. The firm should establish policies and procedures designed to provide it with reasonable assurance
independence requirements, maintain independence when required by relevant ethical requirements.

A. engagement partners to provide the firm with relevant information about client engagem
the overall effect, if any, on independence requirements
B. personnel to promptly notify the firm of circumstances and relationships that create a th
C. the accumulation and communication of relevant information to appropriate personnel
D. all of the above
3. This occurs when, by virtue of a close relationship with an assurance client, its directors, officers or
sympathetic to the client's interests:
A. Management Threat
B. Familial Threat
C. Familiarity Threat
D. Self-interest Threat

4. The firm should establish policies and procedures for the acceptance and continuance of client relat
reasonable assurance that it will only undertake or continue relationships and engagements where it:
A. can comply with legal and relevant quality requirements
B. has considered the integrity of the client and does have information that would lead it to
C. is competent to perform the engagement and has the capabilities, including time and re
D. All of the above

5. Given the following, which is correct?


I. The size and nature of the firm will influence the structure of the firm's performance evalu
II. The firm's recruitment process include procedures that help the firm select individuals of
necessary to perform the firm's work.
A. Both statements are true.
B. First statement is true; second statement is false.
C. First statement is false; second statement is true.
D. Both statements are false.
6. The following are considerations regarding the assignment of engagement teams, except:
A. Knowledge of relevant locations in which the clients operate.
B. Ability to apply professional judgement.
C. An understanding of professional standards and regulatory and legal requirements.
D. An understanding of the firm's quality control policies and procedures.

7. The firm should establish policies and procedures designed to provide it with reasonable assurance
standards and applicable legal and regulatory requirements and that the firm issues reports that are a
include the following:
A. Matters relevant to promoting consistency in the quality of engagement performance
B. Supervision responsibilities
C. Review responsibilities
D. All of the above

8. There should be policies and procedures designed to provide a firm with reasonable assurance th
A. consultation takes place on difficult or contentious issues.

B. the conclusions resulting from consultations are documented, understood by both the in
implemented.
C. resources are available to enable appropriate consultation to take place.

D. the nature and scope of such consultations are not documented and are not agreed upo
consulted.

9. These are the criteria that a firm considers when determining which engagements other than audits
engagement quality control review, except:
A. The identification of usual circumstances or risks in an engagement or class of engagem
B. The nature of the engagement, including the extent to which it involves a matter of publ
C. Whether laws or regulations require an engagement quality control review.
D. None of the above

10. An engagement quality control review ordinarily involves:


A. discussion of significant findings and issues with the management
B. making the financial statements or other subject matter information and the proposed re
C. evaluation of the conclusions reached in formulating the report and consideration of whe
D. review of reports relating to judgments that the management team made and the relate
11. Which is correct about engagement documentation?
I. The firm should establish policies and procedures for engagement teams to complete the
engagement reports have been released.

II. The firm should establish policies and procedures designed to maintain the confidentiality
engagement documentation.

III. The firm should establish policies and procedures for the retention of engagement docum
creditors.
A. II only
B. I and II only
C. I and III only
D. I, II and III

12. The manner in which the inspection cycle is organized, including the timing of selection of individu
A. The results of previous monitoring procedures

B. The size and complexity of the firm's practice and organization


C. The opportunities associated with the firm's clients and specific engagements
D. A and C

13. The inspection of a selection of completed engagements is ordinarily performed on a cyclical basis
A. more than two years
B. no more than two years
C. more than three years
D. no more than three years

14. Recommendations for appropriate remedial actions for deficiencies noted should include one or m
A. Changes to the quality control policies and procedures.
B. The communication of the findings to those responsible for training and professional dev
C. Taking appropriate remedial action in relation to an individual engagement or member o
D. All of the above

15. Personnel issues relevant to the firm's policies and procedures related to human resources include
A. Career expectations
B. Performance evaluation, compensation, and advancement
C. Determining incompetencies and incapabilities, including time to perform assignments
D. The estimation of user needs

16. Controls that the firm designs and implements to maintain the confidentiality, safe custody, integr
include the following, except:
A. Procedures for allowing access to, and disabling proper distribution and confidential stor
B. Appropriate back-up routines for electronic engagement documentation at appropriate s

C. Procedures for properly distributing engagement documentation to the team members a


and collating it at the end of the engagement.

D. The use of a password by engagement team members and data encryption to restrict ac

17. Ongoing consideration and evaluation of the system of quality control may include matters such a
A. Review of engagement documentation, reports, and clients' financial statements
B. Discussions with the firm's personnel
C. Review of selected administrative and personnel records pertaining to the quality contro
D. All of the above
18. Monitoring procedures also may include an assessment of the following:
A. The appropriateness of the firm's guidance materials and any practice aids.
B. The effectiveness of continuing professional development, including training.
C. Both A and B
D. Neither A and B

19. Some of the monitoring procedures may be accomplished through the performance of the followin
A. Engagement quality control review

B. Review of engagement documentation, reports, and clients' financial statements for sele
C. Inspection procedures
D. All of them

20. The partner supervising the investigation of complaints and allegations in accordance with establi
except:
A. has sufficient and appropriate experience
B. has involved an illicit counsel
C. has authority within the firm
D. is otherwise not involved in the engagement

wing element are designed to achieve reasonable assurance with respect to the purpose of that

engagements

th reasonable assurance that the firm; its personnel; and, when applicable, others subject to
ant ethical requirements. Such policies and procedures should require:

ion about client engagements, including the scope of services, to enable the firm to evaluate

ionships that create a threat to independence so that appropriate action can be taken
appropriate personnel

, its directors, officers or employees, a firm or a member of the assurance team becomes too

ontinuance of client relationships and specific engagements, designed to provide the firm with
engagements where it:

tion that would lead it to conclude that the client have integrity
es, including time and resources, to do so

firm's performance evaluation process.

firm select individuals of integrity with no capacity to develop the capabilities and competence

teams, except:

legal requirements.
edures.

th reasonable assurance that engagements are performed in accordance with professional


issues reports that are appropriate in the circumstances. Such policies and procedures should

agement performance

reasonable assurance that:

nderstood by both the individual seeking consultation and the individual consulted, and

ke place.
and are not agreed upon by both the individual seeking consultation and the individual

ements other than audits of financial statements of listed entities are to be subject to an

ment or class of engagements.


nvolves a matter of public interest.
trol review.

nt
ation and the proposed report
and consideration of whether the proposed report is appropriate
eam made and the related conclusions it reached

t teams to complete the assembly of final engagement files on a timely basis after the

aintain the confidentiality, safe custody, integrity, accessibility, and retrievability of

on of engagement documentation for a period sufficient to meet the needs of the investors and

ng of selection of individual engagements, depends on many factors, such as the following:

engagements

ormed on a cyclical basis. An inspection cycle ordinarily spans:

should include one or more of the following:

ing and professional development.


ngagement or member of personnel.

human resources include, for example, the following:

o perform assignments

ality, safe custody, integrity, accessibility, and retrievability of engagement documentation may

ion and confidential storage of, hard copy engagement documentation.


entation at appropriate stages during the engagement.

n to the team members at the start of the engagement, processing it during the engagement,

a encryption to restrict access to electronic engagement documentation to authorized users.

y include matters such as the following:


ncial statements

ning to the quality control elements

ractice aids.
ding training.

rformance of the following:

ncial statements for selected engagements after the report release date

accordance with established policies and procedures may have the following qualifications,

Chapter 6: THE CODE OF ETHICS FOR CPAs IN THE PHILIPP

1. The following are fundamental principles of professional ethics for professional accountants, except
A. Integrity
B. Professional Competence and Care
C. Confidentiality
D. Objectivity
2. It provides guidance on fundamental ethical principles:
A. Professional Behavior
B. Code of Ethics
C.Engagement-Specific Standards
D. Conceptual Framework

3. In identifying, evaluating and responding to threats in compliance with the fundamental principles,
I. A professional accountant shall take only qualitative factors into account when considering

II. A professional accountant has an obligation to evaluate any threats to compliance with th
possibly know, of circumstances or relationships that may compromise compliance with the

III. If a professional accountant can implement appropriate safeguards, the professional acco
involved, or where necessary, resign from the client or the employing organization.
A. I only
B. III only
C. I and II only
D. I, II and III
4. Close family include the following, except:
A. Sibling
B. Spouse
C. Non-dependent child
D. Parent

5. A professional accountant should not allow bias, conflict of interest or undue influence of others to o
A. Confidentiality
B. Integrity
C. Professional Behavior
D. Objectivity
6. Which of the following are phases of professional competence?
A. Attainment of professional competence
B. Maintenance of professional competence
C. Both A and B
D. Neither A and B

7. In deciding whether to disclose confidential information, professional accountants should consider w

A. Whether the interests of all parties could be harmed if the client or employer consents to
B. Whether relevant information is known and substantiated.
C. The nature of communication that is expected and to whom it is addressed.
D. Whether the parties to whom the communication is addressed are good recepients.
8. May occur when a member of the assurance team is, or have recently been, a director or officer of
A. Advocacy Threat
B. Self-Interest Threat
C. Intimidation Threat
D. Self-Review Threat

9. May occur when an audit client indicates that it will not award a planned non-assurance contract to
treatment for a particular transaction.
A. Advocacy Threat
B. Self-Interest Threat
C. Intimidation Threat
D. Self-Review Threat
10. Work environment safeguards comprise:
A. Conflict of Interest Safeguards
B. Engagement-Specific Safeguards
C. Engagement Acceptance Safeguards
D. Contingent Fees Safeguards
11. Examples of circumstances that may create familiarity threat least likely include:

A. A former partner of the firm being a director, officer of the assurance client or an employ
subject matter of the assurance engagement.
B. A member of the assurance team having an immediate family member or close family m

C. A member of the assurance team having an immediate family member or close family m
exert direct and significant influence over the subject matter of the assurance engagement
D. Dealing in, or being a promoter of, share or other securities in an assurance client.

12. When threats to independence that are not clearly insignificant are identified, the following are ap

A. When the firm decides to accept or continue the assurance engagement, the decision ne
eliminated.

B. The evaluation of the significance of any threats to independence and the safeguards ne
account the public interest.
C. Professional judgment is used to determine the appropriate safeguards to eliminate thre

D. In situations when no safeguards are available to reduce the threat to an acceptable lev
creating the threat, or to refuse to accept or continue the assurance engagement.

13. A threat to the following fundamental principle may be created when a professional accountant in
similar arrangement with a major competitor of a client:
A. Integrity
B. Confidentiality

C. Objectivity
D. Professional Competence and Due Care
14. Which of the following is incorrect regarding engagement period?

A. The period of the engagement starts when the audit team begins to perform audit servic
engagement is of a recurring nature.

B. If the assurance engagement is expected to recur, the period of the assurance engagem
relationship has terminated or the issuance of the final assurance report, whichever is earli

C. When an entity becomes an audit client during or after the period covered by the financ
whether any threats to independence may be created by previous services provided to the
D. In the case of an audit engagement, the engagement period includes the period covered

15. Which is correct about a professional accountant in public practice entrusted with money (or other
I. Keep such assets separately from personal or firm assets.
II. Use such assets only for the purpose for which they are intende
III. At all times, be ready to account for those assets, and any income, dividends or gain gen
A. I, II, III
B. I and II only
C. I and III only
D. None of them
16. Independence requires:
A. Independence of Appearance
B. Independence of Mind
C. Both A and B
D. None of them
17. The conceptual framework approach shall be applied by professional accountants to:
A. Identify opportunities to compliance with the fundamental principles.
B. Evaluate the significance of the opportunities identified.
C. Apply safeguards to eliminate opportunities or reduce them to an acceptable level such
D. None of the above

18. Factors to be considered in determining whether to treat additional entities, or certain categories o
A. The nature of the business
B. The policies of the business
C. The size of the business
D. Number of employees
19. A professional accountant in business may be the following, except:
A. A government employee
B. A partner
C. A salaried emplopyee

D. An owner manager

20. If a member of the assurance team, or their immediate family member receives, by way of, for ex
interest or a material indirect financial interest in the assurance client, a self-interest threat would be
threat or reduce it to an acceptable level:
A. Disposing of the financial interest at the earliest practical date.
B. Removing the member of the assurance team from the assurance engagement.
C. Either A or B.
D. Neither A nor B.

onal accountants, except:

fundamental principles, which of the following is correct?


account when considering the significance of a threat.

ats to compliance with the fundamental principles when the professional accountant knows, or
mise compliance with the fundamental principles.

rds, the professional accountant should decline or discontinue the specific professional service
ng organization.

e influence of others to override professional or business judgments. This is the principle of:

untants should consider which of the following points:

or employer consents to the disclosure of information by the professional accountant.

addressed.
are good recepients.

n, a director or officer of that client.

on-assurance contract to the firm if the firm continues to disagree with the client's accounting

nclude:

ance client or an employee in a position to exert direct and significant influence over the

member or close family member who is a director or officer of the assurance client.

member or close family member who, as an employee of the assurance client, is in a position to
e assurance engagement.
n assurance client.

fied, the following are appropriate, except:

agement, the decision need not be documented provided the threats identified were

ce and the safeguards necessary to reduce any threats to an acceptable level, takes into

eguards to eliminate threats to independence or to reduce them to an acceptable level.

eat to an acceptable level, the only possible actions are to eliminate the activities or interest
ce engagement.

ofessional accountant in public practice competes directly with a client or has a joint venture or

ns to perform audit services and ends when the audit report is issued, except when the

the assurance engagement ends with the notification by either party that the professional
report, whichever is earlier.

od covered by the financial statements that the firm will report on, the firm should consider
services provided to the audit client.
ludes the period covered by the financial statements reported on by the firm.

ted with money (or other assets) belonging to others?

me, dividends or gain generated, to any persons entitled to such accounting.

ountants to:
iples.

an acceptable level such that compliance with the fundamental principles is not compromised.

es, or certain categories of entities, as public interest entities include the following, except:

ceives, by way of, for example, an inheritance, gift or, as a result of a merger, a direct financial
nterest threat would be created. The following safeguards should be applied to eliminate the

ce engagement.

Chapter 5 Answer Key

Chapter 6 Answer Key

1. B
2. D
3. C
4. C
5. D
6. A
7. D
8. B
9. A
10. C
11. B
12. A
13. D
14. D
15. B
16. A
17. D
18. C
19. D
20. B

1. B
2. D
3. A
4. B
5. D
6. C
7. A
8. D
9. C
10. B
11. D
12. A
13. C
14. B
15. A
16. C
17. D
18. B
19. A
20. C