Quality Control

Question 1

Which of the following factors does not influence a CPA firm’s quality control policies and procedures?

A. The size of the firm.
B. The nature of the firm’s practice.
C. Cost-benefit considerations.
D. The Sarbanes-Oxley Act.

Answer 1

D. The Sarbanes-Oxley Act.

The objective of quality control policies and procedures is to provide a CPA firm with reasonable assurance that the firm complies with professional standards and legal and regulatory requirements and issues appropriate reports.

Each CPA firm is different. Therefore, the specific quality control procedures will depend on:

The size of the firm (eg, smaller firms may have more partners directly supervising engagements) (Choice A)
The nature of the practice (eg, no issuer clients, mix of issuer and nonissuer clients) (Choice B)
The organizational structure (eg, standalone firm or part of a network of firms)
Cost-benefit considerations (eg, quality reviews of a sample of engagements) (Choice C)
SOX created the PCAOB and gave it the authority to establish quality control standardsfor issuers. The PCAOB quality control standards closely align with GAAS. However, SOX did not prescribe specific quality control standards.

Things to remember:
Quality control standards are influenced by a CPA firm’s size and nature of practice as well as cost-benefit considerations. The PCAOB, not SOX, establishes quality control standards for firms with issuer clients.

Question 2

According to GAAS quality control standards, the following items of information should be included in the documentation of a firm’s engagement quality review, except

A. Evidence that the firm’s required engagement quality control review procedures have been performed.
B. Indication of no unresolved matters leading to inappropriate judgment or conclusions by the engagement team.
C. Evidence of the date that the engagement quality control review was completed
D. Indication that working papers have been reviewed and properly referenced according to the firm’s procedures.

Answer 2

D. Indication that working papers have been reviewed and properly referenced according to the firm’s procedures.

CPA firms have an obligation to establish and maintain a system of quality control. The engagement partner is responsible for the overall quality of the engagement. The objectives of quality control procedures at the engagement level are to reasonably assure that

The issued report was appropriate
The engagement complied with professional standards and applicable laws and regulations
To provide evidence that these quality control requirements have been met, GAAS has established engagement documentation guidelines. These guidelines require the quality control reviewer to document the date the review was completed (Choice C). The documentation should also provide evidence that:

The firm’s required procedures for engagement quality control reviews were performed (Choice A).

There were no identified unresolved matters that would cause the reviewer to believe the engagement team arrived at any inappropriate significant judgments or conclusions (Choice B).

GAAS does not require quality control procedures to ensure that working papers have been reviewed or that referencing is correct. These kinds of reviews typically occur as part of the audit itself and may be part of the firm’s quality control review procedures.

Things to remember:
GAAS requires CPA firms to establish engagement quality control review procedures. To document compliance with GAAS, the engagement quality control review documentation must reflect the date of the review. This documentation must also provide evidence that the firm’s review procedures were followed and no unresolved matters gave rise to inappropriate engagement team judgments or conclusions.

Question 3

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

A. CPA firm personnel have adequate technical training.
B. Engagements are adequately supervised.
C. The CPA firm undertakes only those engagements it is competent to perform.
D. CPA firm personnel comply with relevant ethical requirements.

Answer 3

B. Engagements are adequately supervised.

(Choice A) This answer is incorrect because it is an objective of the human resources element of quality control.

(Choice B) This answer is correct because it is an objective of the engagement performance element of quality control.

(Choice C) This answer is incorrect because it is an objective of the acceptance and continuance of client relationships and specific engagements element of quality control.

(Choice D) This answer is incorrect because the relevant ethical requirements element addresses such compliance.

Question 4

As guidance for measuring the quality of the performance of an auditor, the auditor should refer to

A. Statements of the Financial Accounting Standards Board.
B. Generally accepted auditing standards.
C. Interpretations of the Statements on Auditing Standards.
D. Statements on Quality Control Standards.

Answer 4

B. Generally accepted auditing standards.

(Choice A) This answer is incorrect because Statements of the Financial Accounting Standards Board deal with GAAP which are used to prepare financial statements, but do not address the auditor’s examination of the statements.

(Choice B) This answer is correct because auditors are responsible for compliance with generally accepted auditing standards and comparison of their performance against these standards is appropriate.

(Choice C) This answer is incorrect because while Interpretations of the Statements on Auditing Standards provide timely guidance on the application of certain pronouncements of the Auditing Standards Board, their coverage is less complete than the standards.

(Choice D) This answer is incorrect because Statements on Quality Control Standards provide guidance for CPA firms in meeting their responsibility to provide professional services that conform with professional standards.