1 TECHNICAL INTERVIEW QUESTIONS

FINANCIAL REPORTING
Define Asset
Assets are resources (tangible and intangible) that your business owns, and that can provide you with
future economic benefit. They add value to your business, they can help you meet your commitments
and increase your equity.

Define intangible asset

An intangible asset is an identifiable non-monetary asset without physical substance. Examples include
software, brands, music and film rights and development assets.

Define Liabilities
Liabilities are responsibilities or debts owed to third parties by an individual or organization, generally as
a result of prior transactions or occurrences.

Define Provision
A provision is a liability recorded on a company's balance sheet to account for an estimated future
obligation or expense that is reasonably certain, but the exact timing or amount is uncertain.

Define Contingent Liabilities

Contingent liabilities are potential future obligations that may or may not become actual liabilities,
depending on the outcome of a future event. These liabilities are often uncertain in terms of timing,
amount, or even whether they will materialize. Contingent liabilities are typically disclosed in a
company's financial statements in footnotes or supplementary disclosures

Define Deferred Tax Asset

A deferred tax asset represents taxes that a company has overpaid or is expected to save in future tax
periods due to differences between accounting and tax rules. These differences may lead to tax
deductions or credits in the future. A company records deferred tax assets on its balance sheet,
reflecting the potential reduction in future tax liabilities.

Define Deferred Tax Liability

It represents taxes that a company will likely owe in future tax periods due to temporary differences
between accounting and tax rules. These differences may lead to higher taxable income in the future.

What is Matching principle

Matching principle states that business should match related revenues and expenses in the same period.
They do this in order to link the costs of an asset or revenue to its benefits.

What is prudence concept

In accounting theory and practice, prudence has traditionally been defined as the principle of
recognizing expenses immediately (i.e., not overstating assets) and not recognizing income until it is
reasonably certain (i.e., deferring revenue recognition).

PREPARED BY FAHAD IRFAN

Phone: +92 311 4034441
Linkedin: https://www.linkedin.com/in/fahad-irfan-7546831a3/
2 TECHNICAL INTERVIEW QUESTIONS

Complete set of financial statements

A complete set of financial statements comprises:
• A statement of financial position
• A statement of profit or loss and other comprehensive income
• A statement of changes in equity
• A statement of cash flows
• Notes

List down Revenue 5 step model

1. Identify the Contract with the Customer: In this step, a company determines whether a contract
with a customer exists. A contract is an agreement that creates enforceable rights and obligations
between parties.
2. Identify the Performance Obligations in the Contract: Performance obligations are distinct promises
or deliverables within the contract. A company identifies each distinct obligation to determine when
it should be satisfied.
3. Determine the Transaction Price: The transaction price is the amount of consideration that a
company expects to receive in exchange for satisfying the performance obligations. Companies need
to consider variable consideration, time value of money, and non-cash consideration in this step.
4. Allocate the Transaction Price to the Performance Obligations: If the contract has multiple
performance obligations, a company allocates the transaction price to each of them based on their
relative standalone selling prices. This step ensures that revenue is recognized appropriately for
each obligation.
5. Recognize Revenue When (or as) the Entity Satisfies a Performance Obligation: Revenue is
recognized when the company satisfies a performance obligation by transferring control of a
promised good or service to the customer. This can occur over time or at a specific point in time,
depending on the nature of the obligation.

Treatment of Goodwill and Bargain Purchase option as per IFRS 3

If the consideration transferred exceeds the net of the assets, liabilities and NCI, that excess is
recognised as goodwill. If the consideration is lower than the net assets acquired, a bargain purchase is
recognised in profit or loss.

Define Operating segments

An operating segment is a component of an entity that engages in business activities from which it may
earn revenues and incur expenses, whose operating results are regularly reviewed by the entity’s chief
operating decision maker and for which discrete financial information is available.
Generally, separate information is required if the revenue, profit or loss, or assets of a segment are 10
per cent or more of the equivalent total for all of the operating segments.
At least 75 per cent of the entity’s revenue must be included in reportable segments.

PREPARED BY FAHAD IRFAN

Phone: +92 311 4034441
Linkedin: https://www.linkedin.com/in/fahad-irfan-7546831a3/
3 TECHNICAL INTERVIEW QUESTIONS

Define Control as per IFRS 10

An investor controls an investee when it has power over the investee, exposure, or rights, to variable
returns from its involvement with the investee and the ability to use its power over the investee to
affect the amount of the returns.
An investor has power when it has existing rights that give it the current ability to direct the relevant
activities of the investee—the activities that significantly affect the investee’s returns.

Consolidation procedures
 Intragroup balances, transactions, income and expenses are eliminated.
 All entities in the group use the same accounting policies and, if practicable, the same reporting
date.
 Non-controlling interests (NCI) are reported in equity separately from the equity of the owners of
the parent. Total comprehensive income is allocated between NCI and the owners of the parent
even if this results in the NCI having a deficit balance.

Impairment as per IAS-2

Write-downs to NRV are recognised as an expense in the period the loss occurs. Reversals arising from
an increase in NRV are recognised as a reduction of the inventory expense in the period in which they
occur.

Define Cash and cash equivalents

Cash equivalents include investments that are short-term (less than three months from date of
acquisition), readily convertible to a known amount of cash, and subject to an insignificant risk of
changes in value.

Changes in accounting policies

If the entity makes a change voluntarily, the new policy must be applied retrospectively and prior
periods are restated. The Standard provides relief from retrospective application when it is
impracticable to determine period-specific effects.

Changes in accounting estimates

Changes in accounting estimates (e.g. change in useful life of an asset) are accounted for prospectively,
in the current year, or future years, or both. The comparative information is not restated.

Prior period errors

All material prior period errors are corrected by restating comparative prior period amounts and, if the
error occurred before the earliest period presented, by restating the opening statement of financial
position.

PREPARED BY FAHAD IRFAN

Phone: +92 311 4034441
Linkedin: https://www.linkedin.com/in/fahad-irfan-7546831a3/
4 TECHNICAL INTERVIEW QUESTIONS

Events after the end of the reporting period

Events after the end of the reporting period are those that occur between the end of the reporting
period and the date when the financial statements are authorised for issue.

Adjusting events
The financial statements are adjusted for events that provide evidence of conditions that existed at the
end of the reporting period (such as the resolution of a court case after the end of the reporting period).

Non-adjusting events
The financial statements are not adjusted for events that arose after the end of the reporting period
(such as a decline in market prices after year end). The nature and effect of such events are disclosed.
However, if the events after the end of the reporting period indicate that the going concern assumption
is not appropriate, those financial statements are not prepared on a going concern basis.
Dividends proposed or declared after the end of the reporting period are not recognised as a liability at
the end of the reporting period.

Recognition of Government Grants

A government grant is recognised only when there is reasonable assurance that the entity will comply
with the conditions attached to the grant and it will be received. Non-monetary grants are usually
recognised at fair value, although recognition at nominal value is permitted.
The benefit of government loans with a below-market rate of interest is a government grant—measured
as the difference between the initial carrying amount of the loan determined in accordance with IFRS 9
and the proceeds received.

Definition of an associate
An associate is an entity over which the investor has significant influence. There is a rebuttable
presumption that an investor that holds an investment, directly and indirectly, of 20 per cent or more of
the voting power of the investee has significant influence.

Recognition of Impairment loss as per IAS 36

• An impairment loss is recognised when the carrying amount of an asset exceeds its recoverable
amount.
• An impairment loss is recognised in profit or loss for assets carried at cost and treated as a
revaluation
• decrease for assets carried at the revalued amount.
• Reversal of prior years’ impairment losses is required in some cases, but is prohibited for goodwill.

PREPARED BY FAHAD IRFAN

Phone: +92 311 4034441
Linkedin: https://www.linkedin.com/in/fahad-irfan-7546831a3/
5 TECHNICAL INTERVIEW QUESTIONS

AUDITING
Define Audit
An audit is an official examination of the accounts (or accounting systems) of an entity (by an auditor).

Components of Financial Statements

Financial statements have the following components (as per IAS-1):
 Statement of Financial Position (Balance Sheet)
 Statement of Profit or Loss and other comprehensive income
 Statement of Changes in Equity
 Cash Flow Statement
 Notes to the Financial Statements
 Comparative information prescribed by the standard

Concept of Stewardship
The directors have a stewardship role. They look after the assets of the company and manage them on
behalf of the shareholders. In small companies the shareholders may be the same people as the
directors. However, in most large companies, the two groups are different.

Levels of Assurance
Reasonable Assurance – A high (but not absolute) level of assurance provided by the practitioner’s
conclusion expressed in a positive form.
Limited Assurance – A moderate level of assurance provided by the practitioner’s conclusion expressed
in a negative form.

Elements of Assurance Engagements

 A three party relationship
 Subject matter
 Suitable criteria
 Evidence
 Assurance Report

Auditor’s Risk Assessment Process

 Inquiries
 Analytical procedures
 Observation and inspection

PREPARED BY FAHAD IRFAN

Phone: +92 311 4034441
Linkedin: https://www.linkedin.com/in/fahad-irfan-7546831a3/
6 TECHNICAL INTERVIEW QUESTIONS

Summary of assertions

About transactions/events and related disclosures

 Occurrence
 Completeness
 Accuracy
 Cut-off
 Classification
 Presentation

About account balances and related disclosures

 Existence
 Rights and obligations
 Completeness
 Accuracy, valuation and allocation
 Classification

Materiality Benchmark rates

Benchmark Percentage
Profit Before Tax 5%
Revenue 1% to 5%
Total Asset Up to 1%
Net Asset Up to 3%
Expenses 3% to 5%
Cash flow from operations 3% to 5%

Audit Risk Model

Audit Risk = Inherent Risk × Control Risk × Detection Risk

Define Stratification
The process of dividing a population into sub-populations, each of which is a group of sampling units
which have similar characteristics (often monetary value).

Define Tolerable rate of deviation

A rate of deviation from prescribed internal control procedures set by the auditor in respect of which
the auditor seeks to obtain an appropriate level of assurance that the rate of deviation set by the
auditor is not exceeded by the actual rate of deviation in the population.

Five elements of internal control system

 The control environment
 The entity’s risk assessment process
 The entity’s process to monitor the system of internal control

PREPARED BY FAHAD IRFAN

Phone: +92 311 4034441
Linkedin: https://www.linkedin.com/in/fahad-irfan-7546831a3/
7 TECHNICAL INTERVIEW QUESTIONS

 The information system and communication

 Control activities

Management letter
A management letter is a report typically presented in columnar fashion detailing weaknesses observed
in the client’s system of internal controls. Remember though that the identification of control
weaknesses is a by-product of performing the external audit rather than the objective of an audit.

There are two types of events after the reporting period:

Adjusting events. These are events that provide evidence of conditions that already existed at the end of
the reporting period.

Non-adjusting events. These are events that have occurred due to conditions arising after the reporting
period.

Qualified opinion
The auditor shall express a qualified opinion when:

 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
 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.

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.

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.

PREPARED BY FAHAD IRFAN

Phone: +92 311 4034441
Linkedin: https://www.linkedin.com/in/fahad-irfan-7546831a3/
8 TECHNICAL INTERVIEW QUESTIONS

PREPARED BY FAHAD IRFAN

Phone: +92 311 4034441
Linkedin: https://www.linkedin.com/in/fahad-irfan-7546831a3/