Audit questions to prepare for Big4 interviews

Big 4 interviews like any other interviews generally start with basic introduction of the interviewer and then for yourself, this is generally done so you can get relaxed and become warm with the interview environment. While answering this it is best to focus on your qualification, previous work experiences and types of audit handled.

Few frequently asked interview questions and there best answers are given as below:-

The whole auditing process can generally be divided into three different phases. The audit planning phase includes procedures such as gaining an understanding of the client and its business, making risk and materiality assessments, determining an audit strategy, and determining the type of evidence to collect, based on the risk levels.

Performing the audit refers to the process of collecting evidence. Finally, the reporting phase deals with making conclusions, reporting any necessary adjustments to management, and issuing the audit report.

6. How do you perform sales or revenue audit?

• Internal Controls: Understanding how entity has set up internal control relating to revenue recognition in terms of prices authorisation, goods or services delivery process, revenues recording process, billing and correction process.
• Review the sales occurrence: This is performed by obtaining the sales transactions recorded in the financial statements during the period as well as sales report that link to the financial statements. Then perform an audit sampling to total population of those sales transactions to review against quotation, sales orders, invoices, contracts and goods delivery noted. Ensure that the sampling items are represent the total population, otherwise the conclusion might go wrong.
• Perform Sales Revenues Analysis: This could help auditor to identify the unusual event or transactions related to sales. For example, comparing the sales trend again the goods of goods sold or inventories. This analysis could help auditors to perform additional review if they found that the trend go in different direction.
• Review the sales price authorisation. The fraud over this area is likely to happen. Management is the one who manages and make sure that fraud risk is protected and minimise. But, auditor should also review the control over this area. Focus on unauthorised sales, and unauthorised sales commission that link to performance incentives of sales team and sales manager.
• Review the collectability: Sales increase is good but collectability of those sales amount is importance. Account receivables analysis should be performed, and credit policy should be reviewed. Review the write-off amount of account receivable during the year and then assess its reasonableness.
• Review the sales recognition whether the recognition of sales during the period are respecting the IAS 18 or not. It is importance to assess that the future economic related to sales will be inflow into the company and the sales amount is measurable.
• Review the completeness of revenues recording in the financial statements. Revenues might be understated if they are under recorded.

7. How will you do audit of debtors?

• The auditor should obtain the list of debtors duly certified by the responsible official and scrutinise for its accuracy.
• He should obtain the confirmation letters of the statement of accounts directly from debtors and the same should be verified to check the actual existence of debtors. He should pay special attention to those balances for which confirmations are not available.
• The sales ledger balances should be checked with the Debtor’s Ledger, Sales Book, Sales Returns Book, cash book, etc.
• He should see that the book debt balances do not include the amounts due in respect of goods out on sale or return basis.
• He should see that the book debts shown in the Balance sheet are recoverable.
• He should obtain a duly certified statement classifying between good debts, secured debts, unsecured debts, current debts, bad and doubtful debts, and debts outstanding for a period exceeding six months.
• He should see that adequate provision has been made for bad and doubtful debts.

8. How to audit trade payables?

A trade payable is an amount billed to a company by its suppliers for goods delivered to or services consumed by the company in the ordinary course of business. These billed amounts, if paid on credit, are entered in the accounts payable module of a company’s accounting software, after which they appear in the accounts payable ageing report until they are paid. Any amounts owed to suppliers that are immediately paid in cash are not considered to be trade payables, since they are no longer a liability. Processes that can be used to audit payables are:-

• Examination of SOPs or Working Instructions for AP process and see if the company is following them.
• Analysis of paper trails- Analysing this paper trail requires auditors to review original source documents, such as Purchase orders, Vendor invoices, Journal entries for AP and inventory, and Bank records.
• Balance Confirmations- Auditors may send forms to the company’s vendors asking them to “confirm” the balance owed. Confirmations can either include the amount due based on the company’s accounting records, or Leave the balance blank and ask the vendor to complete it.
• Verification of financial statements- Auditors compare the amounts recorded in the company financial statements to the records maintained by the AP department. This includes reviewing the month-end close process to ensure that items are posted in the correct accounting period i.e. the period in which expenses are incurred.

9. What is audit risk and what are its types?

Audit risk refers to the risk that an auditor may issue an unqualified report due to the auditor’s failure to detect material misstatement either due to error or fraud. It is classified as inherent risk, control risk and detection risk.

10. What are fictitious assets?

Fictitious assets are the expenses or losses which are not fully written off (not offset in the Profit and Loss A/c) during particular accounting period. These expenses or losses are spread over more than one years. The part of these expenses or losses to be shown in the profit and loss account and the remaining amount will be carried forward to the following years. These remaining amount will be shown in the Balance Sheet of the company. Example advertisement expenses, discount on issue of shares and debentures.

11. What are audit assertions?

• Occurrence :Transactions recognised in the financial statements have occurred and relate to the entity.
• Completeness: All transactions that were supposed to be recorded have been recognised in the financial statements.
• Accuracy: Transactions have been recorded accurately at their appropriate amounts.
• Existence: Assets, liabilities and equity balances exist at the period end.
• Cut-off: Transactions have been recognised in the correct accounting periods.
• Classification: Transactions have been classified and presented fairly in the financial statements.
• Rights & Obligations:
• Entity has the right to ownership or use of the recognised assets, and the liabilities recognised in the financial statements represent the obligations of the entity.
• Valuation: Assets, liabilities and equity balances have been valued appropriately.

12. Tell me about IFRS 16?

The IFRS 16 – is the new leases standard. It comes into effect on 1 January 2019. The new standard requires lessees to recognise nearly all leases on the balance sheet which will reflect their right to use an asset for a period of time and the associated liability for payments. It specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Whereas lessors continue to classify leases as operating or finance.

13. What are Deferred taxes, can you give example of each deferred tax assets and liabilities?

Deferred tax refers to the tax effect of temporary differences between accounting income that is calculated by taking into consideration the provisions of Companies Act, 2013 and taxable income that is calculated by taking into consideration the provisions of Income Tax Act,1961. Deferred tax assets are created when Book profit is less than the Taxable profit common examples are bad debts reserves, employee benefit plans, pension plan reserves, carry forward of tax losses.

Deferred tax liability is created when Book profits are higher than the Taxable profit, Eg. in case of depreciation. Generally the depreciation rate as per Income tax act is higher than the depreciation rate per companies act specially in the initial years, so entity will end up paying less taxes for the current period and this will create DTL.

14. What are your strengths and weaknesses, what are you doing to improve them?

While answering these types of questions be sure to mention the skills related to job, like you are a good learner, audit enthusiast, has good leadership and managements skills, good in automating tasks, etc. backup these with any previous references.

Questions for weaknesses are tricky ones and should be answered very carefully, don’t mention the skills that can be seen as affecting your job role. So you can say like you are little emotional, very helping nature and can’t say no., etc. Look for more examples in Google and it will help you for your preparation.

15. Do you have any team handling experience, what were the challenges faced and how you overcome it?

These is asked to understand how you can be seen as working with the team, are you a team player and can collaborate and complete tasks. How the team can synergise with your presence and contribute to achieving business objectives as a whole. Answer these with your previous experience and mention your coaching and team building skills here.

16. Any challenges and achievements in past work?

While answering such questions be to the point and briefly describe the situation and corrective actions taken for a scenario. The best way to go for it by using the SCAR method- Situation, Consequences, Action and Results. Talk about how you faced a conflict or identified a major problem in the system, how it was impacting the business, and how you resolved it in a timely manner and its results.

17. Any questions you have from me?

Always have some questions for the interviewer, try to know more about the job profile here, how it will be like working with them, how is the team, what will be the career progression with them, any training will be imparted, etc. This shows that you are genuinely interested in the job and you can ask anything in more detail which was mentioned earlier by interviewer, this will demonstrate you were listening to him/her carefully and will boost your job candidature.