Audit Interview Answers Compilation - D2P

A collaborative effort by D2P(Degree to Placement)
Telegram link (https://t.me/caplacements) &

crowdsourcing of material for CA Fresher’s of July-22
Purpose: To help CA Fresher’s navigate well in the interview process, we have gathered
the information from various social media channel,
Disclaimer: Please note we are not authors of this document and we are just facilitating
candidates, so we don’t take the responsibility of authenticity of the contents, we know
the author for this document and hence we are giving the due credit for the same to
her, but no one takes any responsibility for any loss or damage that may occur to any
candidate by referring this
Points To Be Kept In Mind Before Referring

● This list contains technical round interview questions and Answers/Hints.
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
personspecific.
● 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 tohave 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.
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Author , Sweety Chaudhary, Page 1 of 23
Crowd Sourced by D2P-Degree To placements Telegram link (https://t.me/caplacements)
Technical Questions
1. What are Audit Assertions/Financial Statements Assertions/Balance sheet and Profit
and Loss statement Assertions?
2. What is RAP (Risk Assessment Procedure)?
3. What is included in Risk Assessment Procedures?
4. What is Audit Risk? Types of Audit Risk?
5. What is IFCR (Internal Financial Control Over Reporting)?
6. Difference between Internal Audit and External Audit?
7. What do you understand by Materiality? How and on what basis an auditor assesses
materiality? Components of Materiality? Why Performance Materiality is set? What
do you understand by clearly Trivial Threshold? (Go through entire SA-320)
8. What is the Risk of Material Misstatements? what do you do when you found a
material misstatement?
9. What is the first step you take when you start Audit of new client?
10. What are substantive Audit Procedures?
11. Explain in brief what is Audit opinion and types of Audit Opinion?
12. Difference between Vouching and Verification?
13. What is Internal Audit? What IC you check while performing Internal Audit?
14. What are controls? How they are different from Procedures?
15. What are the objectives of entity behind the imposition of controls?
16. What are the deficiencies of control (Specifically asking about Design Deficiency and
Operating Effectiveness)? Limitations of IC?
17. What are preventive, Detective Control? Give an example.
18. What is CARO? No. of clauses in CARO 20? Newly Additional clauses in CARO 20? Fixed
Asset clause in CARO 20?
19. What is sampling? How do you choose samples? Sampling Methods?
20. What do you mean by Nature, Timing and Extent of Audit?
21. What is EOM para? Does mention of this leads to qualification?
22. Types of Audit Report? Difference between General Purpose Audit Report and Special
Purpose Audit Report?
23. As an Auditor how will you report fraud?
24. What is the use and purpose of Excel Pivot Table, VLOOKUP, HLOOKUP?
25. Definition, Difference and Journal entry of: - (Mandatory Ques-any one)
i. Provision & Contingent Liability
ii. Accrued Payable & Accrued Expenses
iii. Prepaid Expenses
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iv. Dividend
v. Bad Debts and Provision for doubtful debts
vi. Return on Capital and Return of Capital
vii. Contingencies and Reserves
viii. Deferred tax asset and liabilities
ix. Depreciation and Impairment
x. Accumulated Depreciation
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?
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Technical questions and Answers
1. What are Audit Assertions/Financial Statements Assertions/Balance sheet and Profit

and Loss statement Assertions?
DEFINITION OF ASSERTION: It refers to the representations by management, explicit

or otherwise, that are embodied in the financial statements, as used by the auditor
to consider the different types of potential misstatements that may occur.
In preparing financial statements, Company’s management makes implicit or explicit

claims (i.e. assertions) regarding: (Memory Technique-CEACVOP)
A. Completeness;
B. Existence/ occurrence;
C. Accuracy
D. Cut-off;
E. Valuation/ measurement;
F. Rights and Obligations; and
G. Presentation and disclosure
of Assets, Liabilities, Equity, Income, Expenses and Disclosures in accordance with
the applicable accounting standards.
2. What is RAP (Risk Assessment Procedure)?

Risk assessment procedures: Risk assessment procedures refer to the audit
procedures performed to obtain an understanding of the entity and its environment,
including the entity’s internal control, to identify and assess the risks of material
misstatement, whether due to fraud or error, at the financial statement and
assertion levels.
3. What is included in Risk Assessment Procedures?

The risk assessment procedures shall include the following:
(a) Inquiries of management and of others within the entity who in the auditor’s
judgment may have information that is likely to assist in identifying risks of material
misstatement due to fraud or error.
(b) Analytical procedures.
(c) Observation and inspection
4. What is Audit Risk? Types of Audit Risk?

Audit risk means the risk that the auditor might give an inappropriate audit opinion
when the financial statements are materially misstated.
Audit risk is a function of the risks of material misstatement and detection risk.
Audit Risk = Inherent Risk x Control Risk x Detection Risk
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Risk of material misstatement may be defined as the risk that the financial
statements are materially misstated prior to audit.
This consists of two components- Inherent risk and Control risk.

Inherent risk is the susceptibility of an assertion to a misstatement before
consideration of any related controls.
Control risk is the risk that a misstatement that could occur in an assertion which will
not be prevented, or detected and corrected, on a timely basis by the entity’s
internal control.
Detection risk refers to the risk that the procedures performed by the auditor to
reduce audit risk to an acceptably low level will not detect a misstatement that exists
and that could be material, either individually or when aggregated with other
misstatements.
5. What is IFCR (Internal Financial Control Over Reporting)?

Section 143(3)(i) of the Act requires the auditors’ report to state whether the
company has adequate internal financial controls system in place and the operating
effectiveness of such controls. The auditor’s objective in an audit of internal financial
controls over financial reporting is, “to express an opinion on the effectiveness of the
company’s internal financial controls over financial reporting.” It is carried out along
with an audit of the financial statements.
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.”
6. Difference between Internal Audit and External Audit?
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7. What do you understand by Materiality? How and on what basis an auditor
assesses materiality? Components of Materiality? Why Performance Materiality is
set? What do you understand by clearly Trivial Threshold? (Mandatory ques -Go
through entire SA-320)
Materiality in audit means information included in the financial statements which

can influence the economic decision of users of financial statements. Economic
decisions means financial decisions.
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.
Materiality may need to be revised as a result of a change in circumstances that

occurred during the audit. For example: - A decision to dispose of a major part of the
entity’s business, new information, or a change in the auditor’s understanding of the
entity and its operations as a result of performing further audit procedures.
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
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amounts become material. Make sure that the dues are properly collected and
deposited by the auditor.
f) There are some misstatements which are not material individually but they are
material when aggregated. Therefore, the auditor should consider materiality both
individually and in aggregate (total).
For Example, a misstatement of say Rs 100,000 may not be material for a big
company individually. But if the same misstatement is repeated say 50 times the
amount comes to Rs 5,000,000 which may be material. Therefore, auditor should
consider materiality both individually and in aggregate.
g) Inherent and controls risk – Inherent risk refers to the risk that there may be
some misstatements in financial statements. Whereas control risks refers to the risk
of misstatements even when the internal controls are implemented by the
management. It means that due to these risks there is a possibility of misstatements.
Auditor should consider such risks when he wants to set materiality levels in an
audit.
Benchmarks in Determining Materiality for the Financial Statements as a Whole

Determining materiality involves the exercise of professional judgment. A
percentage is often applied to a chosen benchmark as a starting point in determining
materiality for the financial statements as a whole.
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
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material before consideration of any related controls
● Control risk—The risk that a misstatement that could occur in an assertion that could
be material will not be prevented or detected and corrected on a timely basis by the
entity’s internal control.
During identification of misstatement, less evidence would be required in case
assertions that have a lower risk of material misstatement. But on the other hand, if
assertions have a higher risk of material misstatement, more evidence would be
required.
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:
❖ acquiring knowledge of the client’s accounting systems, policies and internal

control procedures;
❖ establishing the expected degree of reliance to be placed on internal control;
❖ determining and programming the nature, timing, and extent of the audit
procedures to be performed; and
❖ coordinating the work to be performed.
Plans should be further developed and revised as necessary during the course
of the audit.
10. What are substantive Audit Procedures?

Substantive procedure may be defined as an audit procedure designed to detect
material misstatements at the assertion level.
Substantive procedures comprise:
(i) Tests of details (of classes of transactions, account balances, and disclosures), and
(ii) Substantive analytical procedures.
Analytical procedure is the process of analyzing plausible relationships among data

including both financial and non-financial data. Likewise, substantive analytical
procedures are the audit procedures that auditors perform to obtain evidence about
the reasonableness of amounts shown in the financial statements by using such
plausible relationships among data.
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11. Explain in brief what is Audit opinion and types of Audit Opinion?
An auditor's opinion is a certification that accompanies financial statements. It is

based on an audit of the procedures and records used to produce the statements
and delivers an opinion as to whether material misstatements exist in the financial
statements.
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.
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B. Adverse Opinion: The auditor shall express an adverse opinion when the auditor,
having obtained sufficient appropriate audit evidence, concludes that
misstatements, individually or in the aggregate, are both material and pervasive to
the financial statements.
C. Disclaimer of Opinion: The auditor shall disclaim an opinion when the auditor is
unable to obtain sufficient appropriate audit evidence on which to base the opinion,
and the auditor concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be both material and pervasive. The auditor
shall disclaim an opinion when, in extremely rare circumstances involving multiple
uncertainties, the auditor concludes that, notwithstanding having obtained sufficient
appropriate audit evidence regarding each of the individual uncertainties, it is not
possible to form an opinion on the financial statements due to the potential
interaction of the uncertainties and their possible cumulative effect on the financial
statements.
12. Difference between Vouching and Verification?
13. What is Internal Audit?

Internal Audit means “An independent management function, which involves a
continuous and critical appraisal of the functioning of an entity with a view to
suggest improvements thereto and add value to and strengthen the overall
governance mechanism of the entity, including the entity’s strategic risk
management and internal control system”.
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.
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1. Processes are the actions performed by accounting personnel that are
not controls. Controls, on the other hand, are the actions that ensure safety
andaccuracy.
2. A process is what is being done while Controls ensure accuracy and lessen fraud.
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.
Objectives of Internal Control

A. Transactions are executed in accordance with management's general
or specific authorization;
B. all transactions are promptly recorded in the correct amount in the
appropriate accounts and in the accounting period in which executed
so as to permit preparation of financial information within a
framework of recognized accounting policies and practices and
relevant statutory requirements, if any, and to maintain
accountability for assets;
C. assets are safeguarded from unauthorised access, use or disposition;
and
D. The recorded assets are compared with the existing assets at
reasonable intervals and appropriate action is taken with regard to
any differences.
Benefits of Understanding of Internal Control

An understanding of internal control assists the auditor in:
i. identifying types of potential misstatements;
ii. identifying factors that affect the risks of material misstatement, and
iii. designing the nature, timing, and extent of further audit procedures.
Limitations of Internal Control:

1. Internal control can provide only reasonable assurance: Internal control, no
matter how effective, can provide an entity with only reasonable assurance
about achieving the entity’s financial reporting objectives. The likelihood of
their achievement is affected by inherent limitations of internal control.
2. Human judgment in decision-making: Realities that human judgment in
decision-making can be faulty and that breakdowns in internal control can
occur because of human error. Example There may be an error in the design
of, or in the change to, a control.
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3. Lack of understanding the purpose: Equally, the operation of a control may
not be effective, such as where information produced for the purposes of
internal control (for example, an exception report) is not effectively used
because the individual responsible for reviewing the information does not
understand its purpose or fails to take appropriate action.
4. Collusion among People: Additionally, controls can be circumvented by the
collusion of two or more people or inappropriate management override of
internal control. For example, management may enter into side agreements
with customers that alter the terms and conditions of the entity’s standard
sales contracts, which may result in improper revenue recognition. Also, edit
checks in a software program that are designed to identify and report
transactions that exceed specified credit limits may be overridden or
disabled.
5. Judgements by Management: Further, in designing and implementing
controls, management may make judgments on the nature and extent of the
controls it chooses to implement, and the nature and extent of the risks it
chooses to assume.
6. Limitations in case of Small Entities: Smaller entities often have fewer
employees due to which segregation of duties is not practicable. However, in
a small owner-managed entity, the owner-manager may be able to exercise
more effective oversight than in a larger entity. This oversight may
compensate for the generally more limited opportunities for segregation of
duties. On the other hand, the owner-manager may be more able to override
controls because the system of internal control is less structured. This is
taken into account by the auditor when identifying the risks of material
misstatement due to fraud.
16. What are the deficiencies of control (Specifically asking about Design Deficiency
and Operating Effectiveness)?
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.
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17. What are preventive, Detective Control? Give an example.
Preventive controls include security mechanisms, tools, or practices that can
mitigate undesired actions. An example of preventive control is firewalls, anti virus
software etc.
Detective controls are designed to find and verify whether the preventive or
corrective controls are working. Detective controls are designed to detect errors.
Examples include audit trails, logs and CCTVs.
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:
1. a banking company defined under Section 5(c) of Banking Regulation Act,

1949
2. an insurance company defined under Section 2 of the Insurance Act, 1938
3. company licensed to operate under section 8 of the Companies Act
4. One Person Company defined under section 2(62) of the Companies Act,
2013 and a small company as defined under section 2(85) of the Companies
Act, 2013
5. a private limited company, not being a subsidiary or holding company of a
public company, having
paid up capital and reserves and surplus <= Rs 1 crore (on balance
sheet date) &
total borrowings from any bank or FI <= Rs 1 crore (at any point
during the FY) &
total revenue as disclosed in Schedule III to the Companies Act, 2013
(including revenue from discontinuing operations) <= Rs 10 crore (as
per financial statements
CARO 2020 comprises 21 reporting clauses in Paragraph 3.
Details of tangible and intangible assets

● Whether the records maintained by the company display the complete particulars
on the details, quantity and situation of tangible and intangible assets.
● Whether the management has carried out physical verification of the assets at
different intervals reasonable with the size of the company.
● Whether the material discrepancies, if any, noticed on physical verification have
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been accounted for in the books of accounts.
● Whether the title deeds pertaining to the immovable properties (except properties
which are leased by the company with duly executed lease agreements in the
company’s favour) disclosed in the financial statements are held in the name of the
company.
● If the title deeds are not held in the name of the company, the below details should
be provided:
Description of Gross Held Whether Period held: Reason for not

a property carrying in the promoter, indicate a being held in the
value name director or range, where name of
of their relative appropriate company*
or employee
*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.
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2. the reports of the Internal Auditors for the period under audit were
considered by the statutory auditor
Clause xvii – Reporting on Cash Losses
A new clause has been inserted in CARO 2020.
Clause xvii requires auditors to report whether the company has incurred cash losses
in the financial year and in the immediately preceding financial year and if so, the
amount of cash losses is to be disclosed.
Clause xviii – Reporting on Auditor’s Resignation
A new clause has been inserted in CARO 2020, which requires reporting on:-
1. resignation of the statutory auditors during the year, if any

2. whether the auditor has taken into consideration the issues, objections or
concerns raised by the outgoing auditors
Clause xix – Reporting on Financial Position
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.
Clause xx – Reporting on CSR Compliance
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,
2. a special designated bank account (related to any ongoing project)
19. What is sampling? How do you choose samples? Sampling Methods?

‘Audit sampling’ refers to the application of audit procedures to less than 100% of
items within a population relevant under the audit, such that all sampling units (i.e.
all the items in the population) have an equal chance of selection. This is to ensure
that the items selected represent the entire population which enables the auditor to
draw conclusions and express his opinion based on a predetermined objective.
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20. What do you mean by Nature, Timing and Extent of Audit?
Nature covers what audit procedures will be performed for the company. Changing
the nature of an auditor’s substantive testing requires the auditors to take an
effective approach to testing.
Timing indicates when the audit procedures will be performed. Changing the timing
of auditor’s substantive testing ensures reliable evidence such as interim, or year
end.
Extent is how the audit will be performed on a test basis of large or small sample
sizes to gather evidence.
21. What is EOM para? Does mention of this lead to qualification?

As per SA 706 EOM is a paragraph included in auditors report that relates to the
matters appropriately presented or disclosed in the financial statement and in
auditors’ judgement is of importance for users of financial statements.
Examples where it is necessary to include EOM paragraph- An uncertainty relating to
the future outcome of exceptional litigation or regulatory action, a significant
subsequent event that occurs between the date of the financial statements and the
date of the auditor’s report.
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?
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Types of Audit Reports:
1. Unqualified Audit Report: The auditor issues an unqualified audit report to

financial statements when auditors found no material misstatements after their
testing. Therefore, this report contains an unqualified opinion from an independent
auditor.
2. Qualified Audit Report: The qualified Audit report is the reported issue by
auditors to the financial statements that found material misstatements. But those
material misstatements are not pervasive.
3. Adverse Audit Report: An adverse Audit Report is a type of audit report issued to
the financial statements when auditors found material misstatements in the financial
statements. The misstatements found here are different from the material
misstatements found in qualified audit reports. They are materially misstated for
themselves and affect others’ accounts and items in the whole financial statements.
These are called pervasive.
4. Disclaimer Audit Report: The disclaimer audit report is the report that issues the
financial statements where there is matter to auditor’s independence and those
matters cause auditors not be able to obtain sufficient audit evidence to support
their opinion.
Special Purpose Report: A special-purpose financial report is intended for
presentation to a limited group of users or for a specific purpose. For example,
special-purpose financial statements are prepared for tax reporting, bank reporting,
and industry-specific reporting. Most SME’s (Small to Medium Enterprises) and not-
for-profit entities will produce a simple profit and loss and balance sheet, in any
format that the business requires or desires them to be in by following specific
guidelines or reporting requirements established by the directors, owners or
members.
General Purpose Report: General purpose financial reports provide financial

information about the reporting entity that is useful to existing and potential
investors, lenders and other creditors in making decisions about providing resources
to the entity. General-purpose financial statements are issued throughout the year
and includes a balance sheet, income statement, statement of owner’s
equity/retained earnings, and statement of cash flows.
23. As an Auditor how will you report fraud?

Reporting of fraud by an Auditor:
❖ Reporting to CG: As per Section 143 of Companies Act, 2013 if auditor has reason to
believe that offence of fraud involves an amount Rs 1 Cr or more by Companies
employee, it is to be reported to the CG.
❖ Reporting to Audit Committee: In case of fraud for less than Rs 1 Crore, auditor shall
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report to the audit committee.
❖ Disclosure in Boards Report: The auditor is required to report details of frauds in
Boards Reports.
❖ Auditor is required to state the reason for qualification or negative audit report.
24. What is the use and purpose of Excel Pivot Table, VLOOKUP, HLOOKUP?
Pivot Table is an interactive way to quickly summarize large amounts of data. It is
used to summarize, sort, reorganise, and group. It allows us to extract the
significance from a large, detailed data set.
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
Provision Contingent Liability
Provision liability reduces an asset’s Contingent liability is a potential

value because of a present obligation liability that can occur at a future date
arising out of a past event due to events beyond a company’s
control
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.
The estimated amount of the The estimated amount of the

provisional liability is not certain contingent liability is largely certain
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
JE for Contingent Liability:

Cash A/c…. Dr
To Accrued Liability A/c…Cr
______________________________________________________________________________________
ii. Accrued Payable & Accrued Expenses
Accrued Expenses Accounts Payables
Accrued Expenses is a term used in Accounts Payables is the amount that

accounting where the expense is the company has to pay in the short
recorded in the books before it is paid term to the creditors.
for.
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.
Interest Expense…Dr Purchase… Dr

To Interest Payable…..Cr To Accounts Payables..Cr
iii. Prepaid Expenses

Prepaid expenses are future expenses that are paid in advance. On the balance
sheet, prepaid expenses are first recorded as an asset. After the benefits of the
assets are realized over time, the amount is then recorded as an expense.
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
______________________________________________________________________________________
v. Bad Debts and Provision for doubtful debts
Bad Debts Provision For Doubtful Debts
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.
vi. Return on Capital and Return of Capital
Return on Capital Return of Capital
Return on capital (ROC) is a ratio that Return of capital refers to a company

measures how well a company turns returning original investment funds
capital. back to the investor or by liquidating
assets.
vii. Contingencies and Reserves
Contingencies Reserves
A contingency reserve is retained Reserves are part of profits or gain

earnings that have been set aside to that has been allotted for a specific
guard against possible future losses. A purpose. Reserves are usually set up
contingency reserve is needed in to buy fixed assets, pay bonuses, pay
situations where a business an expected legal settlement, pay for
occasionally suffers significant losses, repairs & maintenance and pay off
and needs reserves to offset those debt.
losses.
______________________________________________________________________________________
viii. Deferred tax asset and liabilities
Deferred tax asset Deferred tax liabilities
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.
ix. Depreciation and Impairment
Depreciation Impairment
Depreciation is the method of Impairment is a sudden and

distributing the cost of the asset over substantial decline in the fair or
its useful life. recoverable value of assets.
Depreciation arises due to normal Impairment of an asset can occur for

wear and tear or the use of the asset various reasons, such as a disaster,
for day-to-day operations or legal, economic or operational
obsolescence. reasons.
Depreciation comes as an expense. Impairment is taken as a loss on the

asset.
On Tangible assets only. Types of assets: On fixed, current &

intangible assets.
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.
______________________________________________________________________________________
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)
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)?
Golden Rules of Accounting:

1 Debit The Receiver, Credit The Giver
2 Debit What Comes In, Credit What Goes Out
3 Debit All Expenses And Losses, Credit All Incomes And Gains
Different types of Accounts:

❖ Personal: Personal Accounts are the ones that are related with individuals,
companies, firms, group of associations etc. Eg Veer’s A/c, Kapoor Pvt Ltd,
Prepaid Expenses A/c etc.
❖ 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.
______________________________________________________________________________________
30. What is CFS? Components of CFS? What is the treatment of depreciation in CFS?
● 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.
“ALL THE BEST TO EVERYONE”
______________________________________________________________________________________

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Points To Be Kept In Mind Before Referring

1. What are Audit Assertions/Financial Statements Assertions/Balance sheet and Profit

DEFINITION OF ASSERTION: It refers to the representations by management, explicit

In preparing financial statements, Company’s management makes implicit or explicit

2. What is RAP (Risk Assessment Procedure)?

3. What is included in Risk Assessment Procedures?

4. What is Audit Risk? Types of Audit Risk?

This consists of two components- Inherent risk and Control risk.

5. What is IFCR (Internal Financial Control Over Reporting)?

6. Difference between Internal Audit and External Audit?

Materiality in audit means information included in the financial statements which

Materiality may need to be revised as a result of a change in circumstances that

Benchmarks in Determining Materiality for the Financial Statements as a Whole

❖ acquiring knowledge of the client’s accounting systems, policies and internal

10. What are substantive Audit Procedures?

Analytical procedure is the process of analyzing plausible relationships among data

An auditor's opinion is a certification that accompanies financial statements. It is

12. Difference between Vouching and Verification?

13. What is Internal Audit?

Objectives of Internal Control

Benefits of Understanding of Internal Control

Limitations of Internal Control:

1. a banking company defined under Section 5(c) of Banking Regulation Act,

CARO 2020 comprises 21 reporting clauses in Paragraph 3.

Details of tangible and intangible assets

● Whether the material discrepancies, if any, noticed on physical verification have

Description of Gross Held Whether Period held: Reason for not

Clause xiv – Reporting on Internal Audit

1. resignation of the statutory auditors during the year, if any

Clause xix – Reporting on Financial Position

Clause xx – Reporting on CSR Compliance

2. a special designated bank account (related to any ongoing project)

19. What is sampling? How do you choose samples? Sampling Methods?

21. What is EOM para? Does mention of this lead to qualification?

1. Unqualified Audit Report: The auditor issues an unqualified audit report to

General Purpose Report: General purpose financial reports provide financial

23. As an Auditor how will you report fraud?

Provision Contingent Liability

Provision liability reduces an asset’s Contingent liability is a potential

The estimated amount of the The estimated amount of the

JE for Contingent Liability:

Accrued Expenses Accounts Payables

Accrued Expenses is a term used in Accounts Payables is the amount that

Interest Expense…Dr Purchase… Dr

iii. Prepaid Expenses

Bad Debts Provision For Doubtful Debts

vi. Return on Capital and Return of Capital

Return on Capital Return of Capital

Return on capital (ROC) is a ratio that Return of capital refers to a company

vii. Contingencies and Reserves

A contingency reserve is retained Reserves are part of profits or gain

Deferred tax asset Deferred tax liabilities

ix. Depreciation and Impairment

Depreciation is the method of Impairment is a sudden and

Depreciation arises due to normal Impairment of an asset can occur for

Depreciation comes as an expense. Impairment is taken as a loss on the

On Tangible assets only. Types of assets: On fixed, current &

Golden Rules of Accounting:

Different types of Accounts:

“ALL THE BEST TO EVERYONE”