Certified Public Accountant Quality Control & Assurance 3 — Questions and Answers
Question 1: Under SQCS No. 8, the 'leadership responsibilities' element of quality control is sometimes called the 'tone at the top' because it:
- Requires the managing partner to personally review all audit files
- Emphasizes that firm culture and partner actions influence staff commitment to quality (Correct answer)
- Mandates that leadership attend PCAOB inspections
- Requires the CEO to sign the firm's quality control document
Correct answer: Emphasizes that firm culture and partner actions influence staff commitment to quality
Leadership responsibilities in QC focus on the firm creating a culture where quality is paramount, driven by partner and leadership behavior.
Question 2: A junior auditor is asked by a client's CFO to alter a workpaper to make the audit evidence appear more favorable. The auditor should FIRST:
- Comply since the CFO has authority over financial reporting
- Refuse and immediately report the request to the engagement partner or supervisor (Correct answer)
- Document the request in the workpapers and proceed with the alteration
- Consult the client's audit committee without informing the engagement partner
Correct answer: Refuse and immediately report the request to the engagement partner or supervisor
Any pressure to alter workpapers must be refused and escalated through the firm's chain of command immediately.
Question 3: SQCS No. 8 requires that firms establish policies for the 'human resources' quality control element. Which of the following is covered by this element?
- Fee negotiation with clients
- Hiring, development, performance evaluation, and compensation of personnel (Correct answer)
- Rotation of audit clients among partners
- Selection of audit software and technology
Correct answer: Hiring, development, performance evaluation, and compensation of personnel
The human resources element encompasses policies ensuring personnel are competent, committed to ethical principles, and capable of performing engagements.
Question 4: Which scenario would MOST likely trigger a firm to perform an engagement quality control review?
- A review engagement for a privately held company with revenues under $1 million
- An audit of a public company's financial statements filed with the SEC (Correct answer)
- A compilation engagement for a nonprofit organization
- A tax return preparation for a high-net-worth individual
Correct answer: An audit of a public company's financial statements filed with the SEC
Public company audits (issuers) require an EQCR under PCAOB standards; SQCS No. 8 requires EQCRs for certain high-risk engagements as defined by firm policy.
Question 5: When a CPA firm uses a practice aid or template from an outside vendor for workpaper documentation, the firm's quality control responsibility is:
- Transferred to the vendor if the vendor certifies the template meets professional standards
- Unchanged — the firm remains responsible for adapting and applying the aid appropriately (Correct answer)
- Reduced, as the vendor's certification satisfies GAAS documentation requirements
- Eliminated if the client approves the use of the vendor's tool
Correct answer: Unchanged — the firm remains responsible for adapting and applying the aid appropriately
Using third-party tools does not transfer professional responsibility; the firm must ensure any aid is properly adapted to each specific engagement.
Question 6: A firm's quality control system should include policies addressing how the firm will respond when a conflict of interest is identified. This falls under which SQCS No. 8 element?
- Monitoring
- Human resources
- Relevant ethical requirements (Correct answer)
- Engagement performance
Correct answer: Relevant ethical requirements
Conflicts of interest are ethical matters, so policies addressing them fall under the 'relevant ethical requirements' element of SQCS No. 8.
Question 7: A CPA firm with 5 partners completes an internal inspection of 10 audit files and finds no significant deficiencies. The MOST appropriate conclusion is:
- The firm's quality control system is effective and no further action is needed for three years
- The sample provides some, but not conclusive, evidence about the overall effectiveness of the QC system (Correct answer)
- The firm can reduce future inspection procedures since no issues were found
- The results must be reported to the state board of accountancy within 30 days
Correct answer: The sample provides some, but not conclusive, evidence about the overall effectiveness of the QC system
Monitoring results provide evidence about QC effectiveness, but a single cycle of inspections does not guarantee system-wide effectiveness.
Certified Public Accountant Quality Control & Assurance 3
Under SQCS No. 8, the 'leadership responsibilities' element of quality control is sometimes called the 'tone at the top' because it: