Professional Documents
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Interview
Interview
Why this?
➡️These questions are a compilation of questions asked from the candidates who
recently got interviewed in big4s and Corporates.
➡️If you are preparing for an Audit profile, particularly a statutory Audit Profile, this
compilation is a gem for you. (You will be asked similar questions -90% are covered
in this)
Tip- Prepare these well as every time 80-90% questions are similar, and you will
"surely" qualify all technical rounds of Audit Profile.
● This pdf covers answers to the technical Questions as personal questions are person
specific.
● TIPS for Interview Preparation-
1. You do not have to cram\learn everything word by word for Interview. Just
get a basic idea of everything so that you can explain that in your own
language.
(This pdf contains all technical answers in simplest language-Just read this to
have basic idea of every relevant audit concept)
2. Treat Interviews as two-way communication.
3. Just be yourself and try to explain as much as you can.
26. IND AS -115,116,16 or respective AS (if you haven’t study INDAS-Study respective AS) -
Mandatory ques on one of them (Just go through concepts, understand difference
between AS and INDAS- In-depth study not required)
27. What is schedule III?
28. Accounting Concepts such as Going Concern concept and Prudence Concept
29. What are the Golden Rules of Accounting? What are different types of Accounts (Real,
Nominal and Personal)?
30. What is CFS? Components of CFS? What is the treatment of depreciation in CFS?
31. Suppose there are two companies- Company A and Company B. What points will you
check to ensure consolidation of both companies?
Internal financial controls are “the policies and procedures adopted by the company
for ensuring the orderly and efficient conduct of its business, including adherence to
company’s policies, the safeguarding of its assets, the prevention and detection of
frauds and errors, the accuracy and completeness of the accounting records, and the
timely preparation of reliable financial information.”
Performance materiality - The amount or amounts set by the auditor at less than
materiality for the financial statements as a whole to reduce to an appropriately low
level the probability that the aggregate of uncorrected and undetected
misstatements exceed materiality for the financial statements as a whole. If
applicable, performance materiality also refers to the amount or amounts set by the
auditor at less than the materiality level or levels for particular classes of
transactions, account balances or disclosures.
Factors/ aspects that determine Materiality – there are many factors which
influence materiality level. The important ones being –
a) Requirement of Law - In many countries law defines materiality level. In India
Revised Schedule VI sets materiality level at 1% of the revenue from operations or
100,000 Rs whichever is higher. This is the materiality level we use in accounting for
disclosing material transactions separately. We can consider this when we want to
set materiality levels in audit.
b) Size & nature of the business - Larger the size of the company higher the
materiality level and vice-versa.
c) In many cases we come across misstatements which are insignificant in value -
but they are quality misstatements. For example, Accounting Standards are not
followed or Revised Schedule VI is not followed etc. → Such misstatement, though
small in size, becomes material and needs to be considered by the auditor. This holds
particularly true in case of India because Compliance with Accounting Standards and
Revised Schedule VI is compulsory and if it is not complied with, auditor has to
report the same.
d) Complexity of transactions – increases the materiality level
e) In case of statutory dues even one rupee will be material (irrespective of size of
the company) – For example law requires certain dues to be collected (like indirect
taxes) and deposited in banks on behalf of the Government. In such cases even small
amounts become material. Make sure that the dues are properly collected and
Factors that may affect the identification of an appropriate benchmark include the
following:
The elements of the financial statements. Example:- Assets, liabilities,
equity, revenue, expenses;
Whether there are items on which the attention of the users of the
particular entity’s financial statements tends to be focused. Example:- For the
purpose of evaluating financial performance users may tend to focus on
profit, revenue or net assets;
The nature of the entity, where the entity is in its life cycle, and the
industry and economic environment in which it operates; The entity’s
ownership structure and the way it is financed. Example: - If an entity is
financed solely by debt rather than equity, users may put more emphasis on
assets, and claims on them, than on the entity’s earnings;
The relative volatility of the benchmark.
8. What is the Risk of Material Misstatements? What would you do when you identify
any material misstatement?
Risk of material misstatement: It may be defined as the risk that the financial
statements are materially misstated prior to audit. This consists of two components
described as follows at the assertion level:
● Inherent risk—The susceptibility of an assertion to a misstatement that could be
material before consideration of any related controls
9. What is the first step you take when you start Audit of a new client?
First step in the audit process is planning.
Planning an audit involves: (a) Establishing the overall audit strategy (b) Developing
an audit plan.
“The auditor should plan his work to enable him to conduct an effective audit in an
efficient and timely manner. Plans should be based on knowledge of the client’s
business”.
Plans should be made to cover, among other things:
The auditor shall express an unmodified opinion when the auditor concludes that the
financial statements are prepared, in all material respects, in accordance with the
applicable financial reporting framework.
A. Qualified Opinion: The auditor shall express a qualified opinion when: (a) The
auditor, having obtained sufficient appropriate audit evidence, concludes that
misstatements, individually or in the aggregate, are material, but not pervasive, to
the financial statements; or (b) The auditor is unable to obtain sufficient appropriate
audit evidence on which to base the opinion, but the auditor concludes that the
possible effects on the financial statements of undetected misstatements, if any,
could be material but not pervasive.
14. What are controls? How are they different from Procedures?
Procedures are the systems that are set in place to meet the established standards
of the organization.
15. What are the objectives of the entity behind the imposition of controls? Benefits of
Understanding of Internal Control? Limitations of Internal Control?
Internal Controls Are the policies and procedures that a company implements to
ensure efficiency of business operations, reliability of financial reporting, compliance
with laws & regulations, safeguarding of assets and prevention of frauds.
A deficiency in internal control over financial reporting exists when the design or
operation of a control does not allow management or employees, in the normal
course of performing their assigned functions, to prevent or detect misstatements
on a timely basis.
A deficiency in design exists when (a) a control necessary to meet the control
objective is missing or (b) an existing control is not properly designed so that, even if
the control operates as designed, the control objective would not be met.
A deficiency in operation exists when a properly designed control does not operate
as designed, or when the person performing the control does not possess the
necessary authority or competence to perform the control effectively.
18. What is CARO? No. of clauses in CARO 20? New Additional clauses in CARO 20?
Fixed Asset clause in CARO 20?
To enhance the scope of the audit, the MCA in consultation with the National
Financial Reporting Authority (NFRA) released the CARO 2020. It lists out the subject
matters on which the applicable companies are mandatorily required to report.
CARO 2020 is applicable for all statutory audits commencing on or after 1 April 2021
corresponding to the financial year 2020-21.
CARO 2020 shall apply to every company including a foreign company, except:
*also indicate if
in dispute
● Whether a revaluation has been done by the company of its property, plant and
equipment (including the right of use assets) or intangible assets or both during the
year and, if so, whether the revaluation is based on the valuation by a Registered
Valuer.
● In case of a change in values upon revaluation, specify the amount of change, if the
change is 10% or more in the aggregate of the net carrying value of each class of
property, plant and equipment or intangible assets.
● Whether any proceedings have been initiated or are pending against the company
for holding any benami property under the Benami Transactions (Prohibition) Act,
1988 (45 of 1988) and rules made thereunder. If yes, whether the company has
appropriately disclosed the details in its financial statements.
New clauses Inserted
Clause viii – Reporting on Unrecorded Income: requires auditors to report whether
previously unrecorded income has been surrendered or disclosed as income during
the year in the tax assessments under the Income Tax Act, 1961, has been properly
recorded in the books during the year.
Clause xiv – Reporting on Internal Audit
A new clause has been inserted in CARO 2020. Clause 14 requires auditors to report
whether:-
1. The company has an internal audit system which is commensurable with the
size and nature of its business.
2. the reports of the Internal Auditors for the period under audit were
considered by the statutory auditor
A new clause has been inserted in CARO 2020, which requires the auditor to report
on whether material uncertainty exists or not. Disclosure is required that the auditor
is of the opinion that the company is capable of meeting its liabilities existing on the
balance sheet date as and when they fall due within a period of one year from the
balance sheet date.
A new clause has been inserted in CARO 2020, which requires the auditor to report
on whether unspent CSR amount has been transferred to:-
1. a fund as specified in Schedule VII (where no specific project has been carried
out or assigned) or,
An emphasis of matter paragraph does not modify the audit opinion. Such a
paragraph is also not a substitute for expressing a qualified or adverse opinion, or for
disclaiming an opinion, where they are appropriate. It is instead used to draw the
reader's attention to a specific matter relating to the audit.
22. Types of Audit Report? Difference between General Purpose Audit Report and
Special Purpose Audit Report?
24. What is the use and purpose of Excel Pivot Table, VLOOKUP, HLOOKUP?
VLOOKUP: It is a function that makes Excel search for a certain value in a column, to
return a value from a different column in the same row.
HLOOKUP: Stands for Horizontal Lookup. It is a function that makes Excel search for
a certain value in a row, in order to return a value from a different row in the same
column.
25. Definition, Difference and Journal entry of: - (Mandatory Ques-any one)
i. Provision & Contingent Liability
The event which can result in a The event which can result in a
provisional liability may or may not contingent liability will occur.
occur.
Any increase or decrease in provision The Profit and Loss Account does not
liability gets recorded in the Profit and record a contingent liability
Loss Account
JE for Provision:
Expense A/c…. Dr
To Provision A/c…. Cr
Expenses are periodic and are listed These expenses are part of everyday
on the balance sheet as Accrued process and are listed as Accounts
Expenses as current liability in balance Payables as current liability.
sheet
Rent, wages, bank loan interest where Accounts payable are due to the
payments are made monthly creditors.
JE
Prepaid Rent….. Dr
To Cash…… Cr
iv. Dividend
Dividends are payments a company makes to share profits with its stockholders.
They're paid on a regular basis, and they are one of the ways investors earn a
return from investing in stock.
On Declaration :
Retained Earnings…Dr
To Dividend payable… Cr
On Payment:
Dividend Payable…Dr
To Cash…Cr
Bad Debts amount to that portion of Provision for bad debts is the
the debts which are either estimated percentage of total
irrecoverable or whose probability of doubtful debt that needs to be written
recovery is very rare. off during the next year..
Bad Debt Account (Debit), Debtor's The debtor's account, whose debt is
Account (Credit) recognized as doubtful, is never
closed.
Contingencies Reserves
When profits as per tax laws is more When profits as per tax laws is less
than profits as per books of accounts, than profits as per books of accounts,
A deferred tax asset is required to be Deferred tax liability is required to be
created. created.
Deferred Tax Asset journal entry Deferred Tax liability journal entry
Deferred Tax Asset A/C……. Dr Profit & Loss A/C ……. Dr To
To Profit & Loss A/C………. Deferred Tax Liability A/C……
It is shown under the head of Non- It is shown under the head of Non-
Current Assets in the balance sheet. Current Liability in the balance sheet.
Depreciation Impairment
x. Accumulated Depreciation:
Accumulated depreciation is the total amount of the depreciation expenditure
allocated to a particular asset since the asset was used. It is a contra asset
account, i.e. a negative asset account that offsets the balance in the asset
account with which it is usually linked. The accumulated balance of depreciation
increases over time, adding the amount of the depreciation expense recorded
during the current period.
For INDAS Reference providing you link of ICAI Official study material website
https://www.icai.org/post.html?post_id=17827
27. What is schedule III?
Schedule III provides the format of financial statements of companies complying
with the Accounting Standards and Ind AS.
28. Accounting Concepts such as Going Concern concept and Prudence Concept
Going Concern Concept: Going concern concept is one of the accounting principles
that states that a business entity will continue running its operations in the
foreseeable future and will not be liquidated or forced to discontinue operations for
any reason.
Prudence Concept: Prudence concept is a concept that has been put in place to
ensure that the person who is making the financial statements makes sure that the
assets and income are not overstated to make sure the company is not overvalued.
29. What are the Golden Rules of Accounting? What are different types of Accounts
(Real, Nominal and Personal)?
❖ Real: Real Accounts are the ones that are related with properties, assets or
possessions. Real Accounts can be of two types: Tangible Real Accounts and
Intangible Real accounts. Eg Machinery A/c, trademarks, goodwill etc.
❖ Nominal: Nominal Accounts relate to income, expenses, losses or gains.
These include Wages A/c, Salary A/c, Rent A/c etc.
● A cash flow statement (CFS) is a financial statement that summarizes the amount of
cash and cash equivalents entering and leaving a company.
● The CFS measures how well a company manages its cash position, meaning how well
the company generates cash.
● The CFS complements the balance sheet and the income statement.
● The main components of the CFS are cash from three areas: operating activities,
investing activities, and financing activities.
● The two methods of calculating cash flow are the direct method and the indirect
method.
Depreciation is a non-cash expense, and needs to be added back to the cash flow
statement in the operating activities section, alongside other expenses such as
amortization and depletion.
31. Suppose there are two companies- Company A and Company B. What points will
you check to ensure consolidation of both companies?
For Consolidation of company A and Company B we should check the relationship
among the companies such as:-
a. If company A holds more than 50% shares in company B, then Holding
subsidiary relationship is established.
b. If company A holds more than 20% shares in company B, then company A is
an Associate of company B via substantial Interest.
c. If there is any Joint venture contract between company A and Company B,
then a JV relationship is created.
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