20+ Expertise Contracting Company Interview Questions and Answers

To select samples from 300 ledger accounts, I would use statistical sampling techniques and stratification.

• I would stratify the accounts based on their size, activity, and risk level.

• I would then use statistical sampling techniques such as random sampling or systematic sampling to select a representative sample from each stratum.

• For the account with 1000 entries worth one million dollars, I would use monetary unit sampling to select a sample of entries based on their dollar v...read more

To plan an audit of a mutual fund, one must consider the fund's objectives, risks, and compliance with regulations.

• Review the fund's objectives and investment strategy

• Assess the fund's risk profile and identify potential areas of risk

• Evaluate the fund's compliance with regulatory requirements

• Review the fund's financial statements and performance data

• Assess the fund's internal controls and governance structure

• Consider any related party transactions or conflicts of interest

• Deve...read more

Revenue is recognized over time based on the progress of the contract, using the input or output method.

• Revenue is recognized over time when a customer simultaneously receives and consumes the benefits provided by the entity's performance.

• The entity must be able to measure the progress towards complete satisfaction of the performance obligation.

• Two methods for recognizing revenue over time are input method (costs incurred as a percentage of total expected costs) and output me...read more

Operating effectiveness of internal controls can be checked through testing and documentation review.

• Perform walkthroughs to understand the control environment

• Select a sample of transactions and test controls in place

• Review documentation to ensure controls are being followed

• Assess any identified deficiencies and report findings to management

• Perform follow-up testing to ensure corrective actions have been taken

• Use data analytics to identify potential control weaknesses

Assertions to be covered in an audit of balance and profit and loss

• Existence - assets and liabilities exist at the balance sheet date

• Completeness - all transactions and balances are recorded

• Accuracy - amounts and other data are accurate

• Valuation and allocation - assets, liabilities, revenue, and expenses are valued and allocated appropriately

• Rights and obligations - entity has legal rights to assets and liabilities are obligations of the entity

• Cutoff - transactions are record...read more

If balance confirmation is not received, follow up with the client and document all communication.

• Follow up with the client via email or phone call to request the confirmation again

• Document all communication and efforts made to obtain the confirmation

• Consider alternative methods of verification such as reviewing bank statements or conducting additional audit procedures

• Discuss the issue with the audit team and supervisor for further guidance

• Ensure to maintain professional and ...read more

Verification of liabilities involves confirming the accuracy and completeness of amounts owed by the company.

• Reviewing financial statements and supporting documentation

• Confirming balances with third parties such as vendors and lenders

• Analyzing debt agreements and loan schedules

• Testing for completeness by reviewing invoices and contracts

• Reconciling liabilities to general ledger accounts

Internal control procedures are processes implemented by a company to ensure the accuracy and reliability of financial reporting, compliance with laws and regulations, and safeguarding of assets.

• Internal control procedures are designed to prevent errors and fraud in financial reporting.

• They involve segregation of duties, authorization processes, physical controls, and independent verification.

• Examples include requiring dual signatures on checks, regular inventory counts, and ...read more

Materiality is the threshold at which financial information becomes important to users. Balance sheet assertions are management's claims about the accuracy of financial statements.

• Materiality is the concept that financial information is material if its omission or misstatement could influence the economic decisions of users.

• Balance sheet assertions include existence, rights and obligations, completeness, valuation and allocation, and presentation and disclosure.

• For example, e...read more

Two accounting standards are IFRS and GAAP.

• IFRS (International Financial Reporting Standards) is a set of accounting standards developed by the International Accounting Standards Board (IASB).

• GAAP (Generally Accepted Accounting Principles) is a set of accounting standards developed by the Financial Accounting Standards Board (FASB) in the United States.

• IFRS is used in over 120 countries, while GAAP is used primarily in the United States.

• IFRS focuses on principles-based accoun...read more

In case of failure of internal controls, steps to be taken include identifying the root cause, implementing corrective actions, and reassessing the controls.

• Identify the root cause of the failure by conducting a thorough investigation.

• Implement corrective actions to address the identified issues and strengthen the internal controls.

• Reassess the effectiveness of the controls to ensure that similar failures do not occur in the future.

• Communicate the findings and actions taken t...read more

Impairment is a sudden decrease in the value of an asset, while depreciation is a gradual decrease in the value of an asset over time.

• Impairment is caused by unexpected events such as natural disasters or changes in market conditions.

• Depreciation is caused by wear and tear, obsolescence, or the passage of time.

• Impairment is recognized as a loss on the income statement, while depreciation is recognized as an expense on the income statement.

• Impairment is usually a one-time even...read more

Accounts receivable audit involves verifying the existence, accuracy, and valuation of receivables.

• Confirming receivables with customers directly

• Reviewing aging reports to identify overdue accounts

• Testing the accuracy of recorded sales and receivables

• Analyzing allowance for doubtful accounts for adequacy

• Reconciling receivable balances with general ledger

I have experience in auditing financial statements, internal controls, compliance with regulations, and risk assessment.

• Auditing financial statements for accuracy and compliance

• Assessing internal controls to ensure effectiveness

• Ensuring compliance with regulations and laws

• Conducting risk assessment to identify potential issues

• Performing substantive testing to verify account balances and transactions

Performance materiality is the amount set by auditors at less than overall materiality to reduce the risk of material misstatements.

• Performance materiality is typically set at a lower threshold than overall materiality.

• It is used to determine the extent of audit procedures and sample sizes.

• It helps auditors focus on areas that are more likely to contain material misstatements.

• For example, if overall materiality is $100,000, performance materiality might be set at $75,000.

Audit practical experience involves planning, executing, and reporting on financial audits.

• Planning phase includes understanding client's business, assessing risks, and developing audit plan

• Execution phase involves testing controls, gathering evidence, and performing substantive procedures

• Reporting phase includes drafting audit reports, communicating findings to management, and issuing final opinion

Auditing accounts receivable involves verifying the accuracy and completeness of the amounts owed to a company.

• Confirming the existence of accounts receivable by sending confirmations to customers

• Reviewing the aging schedule to identify any overdue accounts

• Testing the allowance for doubtful accounts to ensure it is adequate

• Reconciling accounts receivable balances to the general ledger

• Analyzing sales transactions to ensure proper recording of revenue

Journal entry for disposal of asset involves removing the asset from the balance sheet and recognizing any gain or loss.

• Debit the accumulated depreciation account to remove the asset's accumulated depreciation

• Debit the asset account to remove the asset's original cost

• Credit the asset disposal account for the asset's carrying amount

• Recognize any gain or loss by comparing the asset's carrying amount with the disposal proceeds

• Credit or debit the gain or loss account accordingly

The process of accepting a client for audit involves assessing the client's suitability, conducting a risk assessment, and obtaining necessary approvals.

• Evaluate the client's reputation, financial stability, and industry risks

• Assess any potential conflicts of interest

• Obtain approval from senior management or the audit committee

• Review the client's financial statements and previous audit reports

• Consider any regulatory requirements or industry-specific standards

Areas of audit in cash include cash receipts, cash disbursements, bank reconciliations, and petty cash.

• Cash receipts: Verify the accuracy of recorded cash receipts and ensure they are properly documented.

• Cash disbursements: Review the authorization process for cash disbursements and ensure proper supporting documentation.

• Bank reconciliations: Compare the company's records with bank statements to identify any discrepancies.

• Petty cash: Verify the existence of petty cash funds a...read more

Materiality is the concept of determining the significance of an item or event in financial statements.

• Materiality is a subjective concept and varies based on the size and nature of the organization.

• It is used to determine what information should be disclosed in financial statements.

• Materiality is determined by considering the size, nature, and frequency of an item or event.

• For example, a $10,000 error in a company with a net income of $1 million may not be material, but the ...read more

Ind AS 115 outlines a comprehensive 5-step model for recognizing revenue from contracts with customers.

• Identify the contract with the customer

• Identify the performance obligations in the contract

• Determine the transaction price

• Allocate the transaction price to the performance obligations

• Recognize revenue as the performance obligations are satisfied

Audit opinions are conclusions reached by auditors after reviewing financial statements. Types include unqualified, qualified, adverse, and disclaimer.

• Audit opinions are conclusions reached by auditors after reviewing financial statements

• Unqualified opinion: auditor believes financial statements are accurate and comply with GAAP

• Qualified opinion: auditor has reservations about certain aspects of financial statements

• Adverse opinion: auditor believes financial statements are ma...read more

Assertions are claims or statements made by management regarding the financial statements.

• Assertions are used to ensure the accuracy and completeness of financial information.

• There are different types of assertions such as existence, completeness, valuation, rights and obligations, etc.

• For example, an assertion of existence would state that all reported assets actually exist.

• Auditors test these assertions during the audit process to provide assurance on the financial statemen...read more

Types of audit opinions include unqualified, qualified, adverse, and disclaimer.

• Unqualified opinion: clean opinion, no issues found

• Qualified opinion: issues found but not pervasive

• Adverse opinion: pervasive issues found, financial statements are not reliable

• Disclaimer opinion: auditor unable to form an opinion due to lack of information