PSA 230

Philippine Standards on Quality Control

PSA 220 (PSQC)
SYSTEM OF QUALITY CONTROL FOR PUBLIC
ACCOUNTANCY FIRMS

QUALITY CONTROL

In a CPA firm, quality control comprises

methods (Policies and Procedures or 2Ps) that
ensure that it meets its professional
responsibilities to clients & others
 Philippine Standards on Quality Control (PSQC)

QUALITY CONTROL STANDARDS

PSQC 1 : Deals with a firm’s responsibilities for

Quality Control for its SQC & applies to all firms of
Firms that Perform professional accountants in respect of:
Audits and Reviews
of Historical (1) Audits & reviews of historical
Financial Information financial information
and Other Assurance (2) Other assurance engagements
and Related Services (3) Related services engagements
Engagements
 Philippine Standards on Quality Control (PSQC)

QUALITY CONTROL STANDARDS

Philippine Standard
on Auditing 220 Deals with specific responsibilities
of the auditor regarding quality of
QUALITY CONTROL control & Engagement Quality
FOR AN AUDIT OF Control Review (EQCR) for an audit
FINANCIAL of historical financial information
STATEMENTS
Conderations in the formulation of SQC:
1. size and nature of its policies
2. degree of operating autonomy allowed to its personnel
3. nature of its practice
4. its organization
5. its geographic dispersion
6. appropriate cost/benefit consideration

Shall be:
- documented
- communicated to personnel
trainings, seminars, meetings, newsletters, dialogue...
Fundamental principles of Policies
and Procedures
• leadership
• education & training
• monitoring
• process for dealing with non-
compliance
ELEMENTS of Quality
Control System:
Quality of
1. Leadership responsibilities Appropriate
Engagement
for quality within the firm; Reports
with
2. Ethical requirements Professional
3. Acceptance and continuance Standards &
of client relationships and Regulatory &
specific engagements Reasonable Legal
4. Human resources Assurance Requirements
5. Engagement performance (PSRLRs)
6. Monitoring.
1. Leadership Responsibilities for Quality of Audits
1. Leadership Responsibilities for Quality within the Firm
• Tone at the top (values, actions and messages)
behaviors and staff messages) --- VMGs --- Strategic Direction
• Support for quality work & quality-oriented control culture:
internal culture
• CEO or managing partners (clarity & consistency)

In concrete:
• Responsibilities must not to override the quality of work
• 2Ps address performance evaluation, compensation &
promotion and the firm's commitment to quality
• Sufficient resources for the development, documentation &
support of its quality control 2Ps
2. Ethical requirements
- FIRM has to establish POLICIES
& PROCEDURES designed to :
* provide reasonable assurance
that the firm & its personnel
comply with relevant
ethical requirements
2. Ethical requirements
2. Ethical requirements
Independence provides reasonable assurance
that... firm, personnel incldg experts contracted &
network firm maintain independence as required by the
Philippine Code of Ethics for CPAs

It requires:
a. Engagement partners to provide relevant information
(scope of services) as
basis in evaluating the overall
impact of independence
b. Personnel notifies any threat or breach to independence
c. Accumulation & communication of relevant information
2. Ethical requirements in PSQC
 Firm in the context of Independence...
 Is independence satisfied?
 Are records maintained
& updated?
 Are actions against
threats to
independence
stipulated?
Intimidation
Self-Interest
Provide Self-review
SAFEGUARDS
2. Ethical requirements in PSQC
 Firm in the context of Independence...
a) sets criteria (where? 2Ps) to safeguard or reduce familiarity
threat to an acceptable level
b) for listed entities, requires rotation of engagement partner and
individuals responsible for
engagement quality
control review
- no more than 5 years
3. Acceptance & Continuance of Client Relationships
2Ps provide reasonable assurance that the FIRM...
- Considers integrity of client
- Is competent to perform the engagement
- Complies with ethical requirements

•Competence, capabilities and resources to deliver

quality service
•Compliance with relevant ethical requirements
•Assignment of engagement teams that delivers
quality service
•Policies that discipline non-compliance and rewards
compliance
3. Acceptance & Continuance of Client Relationships

CONTINUANCE OF CLIENT RELATIONSHIP

- consideration of significant matters that have arisen during
the current or previous engagements, & their implications for
continuing the relationship.
Ex. Lack of expertise in new expansion

DECLINING AN ENGAGEMENT
- Discuss with management & TCWG for the appropriate action
- If appropriate, determine & discuss reasons of withdrawal
- Consider professional/regulatory/legal requirements for the firm
- Document significant issues, consultations, conclusions & basis
4. Human Resources & Assignment
2Ps provide reasonable assurance that the FIRM...
- Sufficient personnel
- Capabilities & competence to perform the engagement
- Compliance with ethical principles

2Ps on Personnel issues :

- Recruitment - Career development
- Performance Evaluation - Promotion
- Capabilities - Compensation
- Competence - Estimation of personnel needs
4. Human Resources & Assignment

Assignment of engagement teams:

a) identity of the engagement partner

- communicated to management & those charged
with governance
b) engagement partner has:
- appropriate capabilities, competence
- authority
- time necessary to perform the audit
c) clearly defined roles & responsibilities of the
engagement partner
4. Human Resources & Assignment

Understanding & practical experience with,

Firm assigns engagements of a similar nature & complexity

Understanding of professional standards &

regulatory & legal requirements
Staff
Technical knowledge including IT knowledge
capabilities
Professional judgment
competence
time Understanding the firm's quality control policies
and procedures
5. Engagement Performance #15-22
2Ps provide reasonable assurance that the FIRM...
a) performs in accordance with professional standards
& other regulatory and legal requirements (PSRLRs),
b) issues audit report appropriate in circumstances

Direction Promotion of consistency

in the quality of
Engagement Supervision engagement performance
partner is
Differences Engagement documentation
responsible for:
in Opinion
Engagement Quality Control
Consultation Review (EQCR)
5. Engagement Performance #15-22

a. nature, timing & extent of an engagement QCR;

- review of F/S or selected working papers
- extent depends on the complexity of the engagement
b. criteria for the eligibility of engagement QC reviewers;
- technical qualifications
- degree of consultation with the reviewer without compromising
objectivity
c. documentation requirements for an engagement QCR
- procedures required
- review completed before the report is issued
- reviewer is not aware of any unresolved matters
Engagement Partner’s Review of Work Performed
6. Monitoring #23
2Ps provide reasonable assurance that ...
Relevant
Adequate
the Firm's Operating effectively
SQC is Complied with in practice
Periodic inspection of
selected completed engagements

Purpose of monitoring compliance is to evaluate:

- Adherence to professional standards & regulatory requirements
- QCS's design and effective implementation
- Appropriateness of the report issued
6. Monitoring
Information  Description of
of results monitoring procedures
Periodic inspection  Conclusions drawn
 Description of
factors considered systematic, repetitive or
significant deficiencies

 size of the firm

 number & geographical location of offices
 results of previous monitoring procedures
 degree of authority of personnel & offices
 nature & complexity of firm's practices & organization
 risks associated with Client & specific engagements
RISK-BASED AUDIT APPROACH
AUDIT PREPARATORY
PSA 210
PSA 300
PSA 510
MULTIPLE CHOICES
40 items
TRUE or FALSE
20 items
1a. Which of the following are elements of a CPA firm’s quality
control that should be considered in establishing its quality
control policies and procedures?

Ethical Human Resources Engagement

Requirements Performance
a. NO NO No
b. NO YES YES
c. YES YES YES
d. YES NO YES
AUDITING RECALL... Multiple Choice Questions

1B. In pursuing its quality control objectives, a CPA firm may

maintain records indicating which of its partners or
employees were previously employed by its clients. Which
quality control element would this be most likely be
satisfied?
a. Leadership responsibilities
b. Human Resources
c. Control activities
d. Ethical requirements
AUDITING RECALL... Multiple Choice Questions

1c. For audits of F/S of listed entities, the engagement partner

should not issue the auditor’s report until the completion
of the
a. Engagement quality control review
b. Management review
c. Engagement team review
d. Engagement partner review
AUDITING RECALL... Multiple Choice Questions

1d. The least important element in the evaluation of a CPA firm’s

system of quality control would concern its policies and
procedures with respect to
a. Assigning personnel to engagement
b. Hiring
c. Confidentiality of audit engagements
d. Determination of audit fees
AUDITING RECALL... Multiple Choice Questions

1e. Who should take responsibility for the overall quality on

on each audit engagement?
a. Engagement supervisor
b. CPA firm
c. Engagement partner
d. Engagement team
1f. The nature, timing, and extent of an audit firm’s quality
control policies and procedures depend on

CPA Nature of the CPA Appropriate cost-

Firm’s size Firm’s practice benefit considerations
a. NO NO No
b. YES YES YES
c. NO YES YES
d. YES NO YES
1g. The engagement partner should take responsibility for the
direction, supervision & performance of the audit engagement
with professional standards & regulatory & legal requirements
(PSRLR), & for the auditor’s report that is issued to be
appropriate in the circumstances. Supervision includes, except
a. Tracking the progress of the audit engagement
b. Addressing significant issues arising during audit engagement
considering their significance, & modifying the planned
approached appropriately.
c. Informing the members of the engagement team of their
responsibilities
d. Identifying matters for consultation by more experienced
engagement team members during the audit engagement
1j. The implementation of quality control procedures that are
applicable to the individual audit engagement is the
responsibility of the
a. CPA firm
b. Engagement team
c. Engagement partner
d. Engagement quality control reviewer
1k. A firm’s system of quality control should ordinarily provide for
the maintenance of
a. A file of minutes of staff meetings
b. Updated personnel files
c. Documentation to provide evidence of the operation of
each element of its system of quality control
d. Documentation to demonstrate compliance with
regulatory requirements
1l. The audit work performed by each assistant should be reviewed
to determine whether it was adequately performed and to
evaluate whether the
a. Results are consistent with the conclusions to be presented
in the auditor’s report
b. Auditor’s system of quality control has been maintained in
high level
c. Audit procedures performed are approved in the
professional standards
d. Audit has been performed by persons having adequate
technical training & proficiency as auditor
1. Which of the following is one of the elements of a firm's
quality control system?

a. Leadership responsibilities
b. Computer assisted audit techniques
c. Control activities
d. Control environment
2. To accept or retain a client, the firm should consider

a. Its competence
b. Its ability to comply with ethical requirements
c. Integrity of the client's management
d. All three should be considered
3. Quality control policies and procedures should provide the
firm reasonable assurance that the policies & procedures
relating to the other elements of quality control are being
effectively applied & complied with in practice. This
statement defines the Quality Control of:

a. Planning
b. Independence, integrity and objectivity
c. Assignment
d. Monitoring
4. A deficiency in the firm's system of quality control is an
indication that:

a. the audit engagement was not performed in

accordance with the professional standards
b. Audit reports issued were not appropriate
c. both a and b
d. neither a nor b
5. In compliance with the element of human resources,
the firm should address issues relating to:

a. engagement performance
b. assignment of engagement teams
c. consultation
d. differences of opinion
6. As defined in PSQC 1, _____ is a process comprising an
ongoing consideration and evaluation of the firm’s system
of quality control, including a periodic inspection of a
selection of completed engagements, designed to provide
the firm with reasonable assurance that its system of
quality control is operating effectively.

a. Monitoring
b. Inspection
c. Supervision
d. Engagement quality control review
7. A quality control policy that requires personnel in the
firm to adhere to independence, integrity, objectivity,
confidentiality and professional behavior, relate to

a. ethical requirements
b. assignment
c. human resources
d. consultation
8. Which of the following quality control procedures relates to
engagement performance

I. Review
II. Direction
III. Professional development
IV. Consultation
V. Supervision

a. I, II, III and IV c. I, III, IV and V

b. I, II, IV and V d. I, II, III, IV and V
9. The person responsible for the audit engagement
performance including the direction, supervision, review
and overall performance of the audit engagement.

a. quality control reviewer

b. engagement partner
c. client's management
d. audit manager
10. The firm shall establish policies & procedures requiring for
appropriate engagements, an engagement quality control
review (QCR) that provides an objective evaluation of the
judgments & conclusions made by the engagement team.
Considerations are the following, except
a. Requires an engagement quality control review (QCR) for all
audits of financial statements of listed entities.
b. Sets out criteria against all audits and reviews of historical
information, & other assurance & related services.
c. Requires an engagement QCR for internal control system
d. Requires an engagement QCR for all engagements meeting
the criteria established in compliance (b).
11. A CPA firm evaluates its personnel advancement
experience to ascertain whether individuals meeting
stated criteria are assigned increased degrees of
responsibility. This is evidence of the firm’s adherencce
to which of the following prescribed standards:

a. Professional ethics
b. Supervision and review
c. Accounting and review services
d. Quality Control
12. The nature & extent of a particular firm's quality
control policies and procedures depend on such
factors as:

a. size and nature

b. geographic dispersion
c. cost & benefit considerations
d. all of the above
13. The objective of quality control policies to be adopted
by an audit firm will ordinarily incorporate all of the
following except:

a. Leadership responsibilities
b. Audit risk assessment
c. Engagement performance
d. Human resources
14. A firm of independent auditors must establish & follow
quality control policies & procedures because these
standards

a. Are necessary to meet increasing requirements of

auditor’s liability as insurers
b. Are required by the SEC for auditors of all firms
c. Include formal filing of records of such policies and
procedures to a regulatory agency
d. Give reasonable assurance that the firm as a whole will
comply with professional standards
15. Which of the following is not an essential component of
quality control

a. Policies and procedures to ensure that firm personnel are

actively engaged in marketing strategies.
b. Policies and procedures to ensure that the work performed by
firm personnel meet applicable professional standards.
c. Policies to ensure that personnel maintain that independence
in fact and in appearance
d. Policies that ensure that monitoring activities are effectively
applied.
16. This element requires the firm to establish policies and
procedures designed to provide reasonable assurance
that engagements are performed in accordance with PSRLR
and the reports issued that are appropriate in the
circumstances.

a. Quality assurance review

b. Engagement Performance
c. Documenting
d. Auditing
17. A CPA firm may communicate its quality control policies
and procedures to its personnel in which manner (s):

Orally Written
a. NO NO
b. NO YES
c. YES NO
d. YES YES
18.The objective of quality control mandates that a public
accounting firm should establish policies and procedures
for professional development that provide reasonable
assurance that all entry-level personnel

a. Prepare working papers that are standardized in form

and content
b. Have the knowledge required to enable them to fulfill
responsibilities assigned
c. Will advance within the organization
d. Develop specialties in specific areas of public accounting
19.Quality control policies for the acceptance & continuance
of clients are established to:

a. Enable the auditor to report on management’s integrity

b. Comply with standards established by regulatory bodies
c. Minimize the likelihood of associating with management that
lack integrity
d. Reduce exposure to litigation from failing to detect fraud
20.What is the most relevant use of knowledge management
system for an auditor?

a. Professionals may input client data and have procedures

performed automatically
b. Auditors are not required to make judgments collectively or
individually
c. Professionals may share information related to auditing,
accounting standards and risks
d. Auditors may work entirely from the firm location rather than
at the client location.
21. When making a client continuance decision the auditor
should evaluate a client based upon which of the following:

a. Client entity characteristics

b. Independence risk factors
c. Financial reporting risks
d. All of the above
22.One purpose of establishing quality control policies and
procedures for deciding whether to accept a new client is to

a. Enable the CPA firm to attest to the reliability of the client

b. Satisfy the CPA firm’s duty to the public concerning the
acceptance of new clients
c. Provide reasonable assurance that the integrity of the client is
considered.
d. Anticipate before performing any field work whether an
unqualified opinion can be issued.
23. If there is a significant difference of opinion between a
senior auditor and an audit manager on an audit engagement,
to whose attention should the senior auditor first bring the
matter?

a. The managing partner or senior partner of the firm

b. The engagement partner on the engagement
c. The practice advisor in the CPA affiliate office
d. Another audit manager in the firm
24. The skills and qualities of the engagement team is likely to
provide a positive contribution to audit quality where

a. Partners and staff understand their client’s business & adhere

to the principles underlying auditing & ethical standards.
b. Partners & staff exhibit professional skepticism in their work
& are robust in dealing with issues identified during the audit.
c. Sufficient training is given to audit personnel in audit,
accounting and industry specialist issues.
d. All of the above
25. Quality control policies for the acceptance and
continuance of clients are established to:

a. Enable the auditor to report on management’s integrity

b. Comply with standards established by regulatory bodies
c. Minimize the likelihood of associating with management
that lack integrity
d. Reduce exposure to litigation from failing to detect fraud
26. The engagement letter documents and confirms the

A B C D
Auditor’s acceptance of the YES YES YES YES
appointment
Objective & scope of the audit YES NO YES YES
Extent of the auditor’s
responsibilities to the client YES YES NO NO
Form of any reports YES NO NO YES
27. Which of the following is not an element of quality
control?

a. Monitoring
b. Internal control
c. Human resources
d. Leadership
28. To exercise due professional care an auditor should

a. Attain proper balance of professional experience &

formal education
b. Deign the audit to detect all instances of illegal acts
c. Critically review the judgment exercised by those
assisting in the audit
d. Examine all available corroborating evidence
supporting management’s assertions.
29. One of a CPA firm’s basic objectives is to provide professional
services that conform with professional standards.
Reasonable assurance of achieving this basic objective is
provided through

a. A system of peer review

b. Continuing professional development
c. Compliance with PFRS
d. A system of quality control
30. ABC & Co CPAs have policies requiring that all members of
the audit staff submit weekly time reports to the audit
manager, who then prepares a weekly summary work
report regarding variance from budget for ABC’s review.
This provides written evidence of ABC’s professional concern
regarding compliance with which PSAs?

a. Quality control
b. Due professional care
c. Adequate review
d. Adequate planning
AUDITING RECALL...
TRUE or FALSE
20 items
AUDITING RECALL... TRUE or FALSE

1. Practice Statements are issued to provide interpretative

guidance and practical assistance to professional
accountants in implementing the standards and to
promote good practice.
2. The CPA firm’s quality control policies & procedures
provide absolute assurance that the firm will be able to
meet all applicable standards, professional and
regulatory , and issue reports appropriate in the
circumstances.
AUDITING RECALL... TRUE or FALSE

3. Anybody in the auditing firm, as long as a CPA, can serve

as an Engagement Quality Control Reviewer if the firm
allows such.
4. At least semi-annually, the firm should obtain written
confirmation of compliance with its policies &
procedures on independence from all firm personnel
required to be independent by the relevant ethical
requirement.
AUDITING RECALL... TRUE or FALSE

5. The professional standards states that a CPA needs to

observe and adhere to those issued by AASC, BOA, PRC
and SEC only.

6. The nature and extent of policies and procedures may

depend on factors such as (a) its size, (b) operating
characteristics; and © whether it is part of a network.
AUDITING RECALL... TRUE or FALSE

7. Consultation helps to promote quality and improves the

application of professional quality standards.

8. The requirements of the firm’s quality control system

based on Philippine Standards on Quality Control (PSQC)
must be applied to all firms.
AUDITING RECALL... TRUE or FALSE

9. The firm shall communicate its quality control system

specifically its policies & procedures to all personnel &
maintain sufficient documentation of the operation.

10. The CPA must apply the requirements of Philippine

Standards on Review Engagements (PSREs) when
performing a review of client’s prospective F/S.
AUDITING RECALL... TRUE or FALSE

11. The definitions of ‘firm, network or network firm’ in

relevant ethical requirements may differ from those set
out in PSA 220.

12. PSA 220 should be read in conjunction with PSA 120 and
relevant ethical requirements.
AUDITING RECALL... TRUE or FALSE

13. The scope of PSA 220 deals with the specific

responsibilities of the auditor regarding quality control
procedures for an audit of financial statements.

14. The engagement quality control review (QCR) process is

only for audits of financial statements of listed entities and
those other audit engagements, if any, for which the firm has
determined.
AUDITING RECALL... TRUE or FALSE

15. Network firm has a larger structure. .

16.Personnel are professionals, other than partners,

including any experts the firm employs
AUDITING RECALL... TRUE or FALSE

17. Supervision does not include tracking the process and

progress of the audit engagement

18. Appropriate teamwork and training assist more

experienced members of the engagement team to clearly
understand the objectives of the assigned work.
AUDITING RECALL... TRUE or FALSE

19. The CPA firm’s quality control policies and procedures

provide absolute assurance that the firm will be able to meet
all applicable standards, professional and regulatory, and
issue reports appropriate in the circumstances.

20. Engagement QCR of listed entities include judgments

made, particularly with respect to materiality and significant
risks