Certified Public Accountant Quality Control & Assurance 5 — Questions and Answers
Question 1: A PCAOB inspection report identifies a quality control criticism related to audit documentation. The registered firm's response should be submitted within:
- 30 days of the report's issuance
- 60 days of the report's issuance (Correct answer)
- 30 days after the firm's fiscal year end
- No formal response is required
Correct answer: 60 days of the report's issuance
Firms have 60 days to respond to PCAOB inspection report criticisms and describe their remediation plans.
Question 2: Which of the following BEST illustrates a 'systemic' quality control deficiency versus an 'isolated' one?
- One engagement partner failed to document a key estimate; another partner documented all estimates properly
- Multiple engagement teams across different offices consistently failed to test IT general controls (Correct answer)
- A single client's accounts receivable confirmation response rate was below the firm's threshold
- One workpaper file was misfiled in the document management system
Correct answer: Multiple engagement teams across different offices consistently failed to test IT general controls
A systemic deficiency affects multiple engagements or teams, suggesting a flaw in firm-wide policies or training, unlike an isolated lapse by one individual.
Question 3: Under SQCS No. 8, the 'engagement performance' element requires firms to establish policies for all of the following EXCEPT:
- Supervision and review of engagement work
- Consultation on difficult or contentious matters
- Differences of opinion among engagement team members
- Setting audit fees for new clients (Correct answer)
Correct answer: Setting audit fees for new clients
Fee-setting is a firm business decision, not a component of the engagement performance quality control element.
Question 4: A staff auditor disagrees with the engagement manager's conclusion on a going-concern matter. Under quality control standards, the staff auditor should:
- Accept the manager's conclusion since the manager has more experience
- Raise the disagreement through the firm's established consultation or differences-of-opinion procedures (Correct answer)
- Directly contact the client's audit committee about the disagreement
- Issue a qualified audit report without the manager's knowledge
Correct answer: Raise the disagreement through the firm's established consultation or differences-of-opinion procedures
Firms must have policies allowing personnel to escalate differences of opinion without fear of reprisal, ensuring significant disagreements are resolved properly.
Question 5: Which of the following would MOST likely be included in a CPA firm's annual quality control report issued to partners?
- Individual audit scores for each staff member reviewed
- Summary of monitoring results, identified deficiencies, and corrective actions taken (Correct answer)
- Names of clients where engagement quality reviews were performed
- Comparison of the firm's billable hours to industry benchmarks
Correct answer: Summary of monitoring results, identified deficiencies, and corrective actions taken
The firm's annual quality control report to partners summarizes monitoring findings, deficiencies found, and actions taken to address them.
Question 6: A firm's quality control policies require that a consultation memo be prepared when an engagement team encounters a novel revenue recognition issue. The primary purpose of this requirement is to:
- Reduce the firm's liability exposure by shifting responsibility to the consultant
- Ensure complex matters are resolved with appropriate expertise and that conclusions are documented (Correct answer)
- Satisfy the client's request for a second opinion on the accounting treatment
- Meet the PCAOB's mandatory pre-clearance requirement for revenue recognition matters
Correct answer: Ensure complex matters are resolved with appropriate expertise and that conclusions are documented
Consultation policies ensure that difficult matters receive input from qualified personnel and that the basis for conclusions is documented in the engagement file.
Question 7: Under PCAOB standards, if an engagement quality reviewer concludes that the engagement team's significant judgments are not supported, the reviewer should:
- Withdraw from the EQCR and allow the report to be issued
- Not provide concurrence until the issues are resolved to the reviewer's satisfaction (Correct answer)
- Issue a separate qualified opinion appended to the audit report
- Report the disagreement directly to the SEC without involving firm leadership
Correct answer: Not provide concurrence until the issues are resolved to the reviewer's satisfaction
The engagement quality reviewer must withhold concurrence if significant judgments are unsupported; the report cannot be issued until the EQCR is satisfactorily completed.
Certified Public Accountant Quality Control & Assurance 5
A PCAOB inspection report identifies a quality control criticism related to audit documentation.
The registered firm's response should be submitted within: