Ernst & Young Auditing Intern Interview Questions and Answers

Answering a question on Ind AS 115 and revenue recognition

• Ind AS 115 provides a 5-step model for revenue recognition

• The 5 steps are: identify the contract, identify the performance obligations, determine the transaction price, allocate the transaction price, and recognize revenue

• Revenue can be recognized over time if certain conditions are met, such as the customer simultaneously receiving and consuming the benefits of...read more

Ind AS 116 is a new accounting standard that replaces the old lease accounting standard.

• Ind AS 116 is effective from April 1, 2019.

• Its objective is to provide a single lessee accounting model that requires lessees to recognize assets and liabilities for all leases with a term of more than 12 months.

• Operating leases are treated as off-balance sheet financing, while financial leases are treated as on-balance sheet financ...read more

Audit of Balance Sheet and Profit & Loss A/c involves verifying the accuracy of financial statements.

• Verify the accuracy of account balances and transactions

• Check for proper classification and presentation of financial data

• Ensure compliance with accounting standards and regulations

• Perform analytical procedures to identify unusual transactions or trends

• Confirm balances with third-party sources

• Review supporting documenta...read more

Internal Financial Control over Financial Reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting.

• It involves the establishment and maintenance of policies and procedures

• It ensures that financial information is accurate and complete

• It helps in preventing and detecting fraud

• It involves monitoring and reviewing financial reporting processes

• Examples include segregat...read more

Deferred tax is a liability or asset that arises due to temporary differences between accounting and tax rules.

• Deferred tax liability arises when taxable income is higher than accounting income, and deferred tax asset arises when accounting income is higher than taxable income.

• Examples of temporary differences include depreciation, inventory valuation, and revenue recognition.

• Deferred tax is calculated using the tax ra...read more

CARO 2020 has been amended recently. Can you tell me about the amendments?

• CARO 2020 has been amended to include reporting on the utilization of Corporate Social Responsibility funds.

• The auditor is now required to report on the adequacy and effectiveness of internal financial controls.

• Reporting on the details of proceedings initiated or pending against the company for holding benami property has been added.

• The auditor i...read more

Types of audit opinion include unqualified, qualified, adverse, and disclaimer. Audit risk is the risk of material misstatement.

• Unqualified opinion means the financial statements are fairly presented.

• Qualified opinion means there are some limitations or exceptions in the financial statements.

• Adverse opinion means the financial statements are materially misstated.

• Disclaimer opinion means the auditor is unable to express...read more

To verify a particular ledger, one can perform various procedures such as physical verification, reconciliation, and analytical review.

• For Fixed Assets ledger, perform a physical verification of assets and reconcile with the register.

• For Creditors ledger, reconcile the balance with the supplier statements and review the aging analysis.

• For Inventory ledger, perform a physical count and reconcile with the inventory regis...read more

Audit assertion is a claim made by the management regarding the accuracy of financial statements.

• Audit assertions are used to evaluate the completeness, accuracy, and validity of financial statements.

• There are six types of audit assertions: existence, completeness, accuracy, valuation, rights and obligations, and presentation and disclosure.

• For example, existence assertion ensures that all assets and liabilities in the...read more

Audit is a systematic and independent examination of financial statements, records, operations, and performance of an organization.

• Audit is a process of evaluating an organization's financial and operational activities.

• It involves examining financial statements, records, and transactions to ensure accuracy and compliance with laws and regulations.

• Auditors provide an independent opinion on the fairness and reliability o...read more

Bank Reconciliation Statement is a document that matches the bank balance with the company's balance.

• It is used to identify any discrepancies between the two balances.

• It includes items such as outstanding checks, deposits in transit, and bank fees.

• A practical example would be comparing the company's records of deposits and withdrawals with the bank statement to ensure accuracy.

• Any differences found are then investigate...read more

When an asset increases, it must be debited.

• Debit increases assets and credit decreases assets.

• Assets include cash, accounts receivable, inventory, property, and equipment.

• For example, if a company purchases a new machine, the asset account for machinery will be debited to increase it.

• This is based on the accounting equation: Assets = Liabilities + Equity.

Equity decreases must be debited.

• Equity is a credit balance account, so when it decreases, it must be debited to reduce the credit balance.

• Debiting equity reduces the owner's or shareholder's equity in the business.

• Examples of equity decreasing transactions include paying dividends, recording losses, or issuing treasury stock.

Operating expenses are costs incurred in running a business, while COGS are expenses directly related to producing goods or services.

• Operating expenses include salaries, rent, utilities, and marketing expenses.

• COGS include the cost of raw materials, labor, and manufacturing overhead.

• Operating expenses are recorded on the income statement, while COGS is deducted from revenue to calculate gross profit.

• Operating expenses ...read more

Petty cash book is used for small cash transactions while cash book is used for all cash transactions.

• Petty cash book is used for small cash transactions like buying office supplies or paying for small expenses.

• Cash book is used for all cash transactions including receipts and payments.

• Petty cash book is maintained by a petty cashier while cash book is maintained by the main cashier.

• Petty cash book is usually a single ...read more