CA Ganesh Vijay Sai

Here are some 25 Common Statutory Audit Interview Questions along with brief answers to
help you prepare effectively:

1. Materiality:
o Question: How do you determine the materiality threshold for an audit
engagement?
o Answer: Materiality is determined based on quantitative factors like a percentage
of total assets, revenues, or profits, and qualitative factors such as the nature of
the item and its impact on the financial statements.
2. Types of Control:
o Question: Explain the difference between preventive and detective controls.
o Answer: Preventive controls aim to prevent errors or fraud before they occur,
such as segregation of duties. Detective controls identify issues after they occur,
like reconciliations and audits.
3. IND AS 115 Revenue Model:
o Question: Walk me through the five-step model for revenue recognition under
IND AS 115.
o Answer: The steps are: identify the contract, identify performance obligations,
determine the transaction price, allocate the transaction price to performance
obligations, and recognize revenue as obligations are satisfied.
4. Walkthrough:
o Question: What is a walkthrough in an audit context?
o Answer: A walkthrough involves tracing a transaction from initiation to
completion, observing the controls in place, and verifying their implementation
and effectiveness.
5. Deferred Revenue Entry:
o Question: Explain deferred revenue with an example.
o Answer: Deferred revenue is payment received before delivering goods or
services. For example, an advance payment for a subscription service recognized
as revenue over the subscription period.
6. Starting an Audit:
o Question: What are the key steps you take during the planning phase of an audit?
o Answer: Steps include understanding the client's business, assessing risks, setting
materiality, planning audit procedures, and coordinating with the audit team.
 CA Ganesh Vijay Sai

7. MRL vs. Engagement Letter:

o Question: What is the difference between a Management Representation Letter
(MRL) and an Engagement Letter?
o Answer: An Engagement Letter outlines the scope and terms of the audit
engagement, while an MRL is obtained at the end of the audit and contains
management's assertions about the financial statements.
8. Auditing Cash and Cash Equivalents:
o Question: What procedures do you perform to audit cash and cash equivalents?
o Answer: Procedures include bank confirmations, verifying reconciliations,
reviewing bank statements, and ensuring proper classification of cash equivalents.
9. Obtaining Confirmation:
o Question: How do you obtain external confirmations, and why are they
important?
o Answer: Confirmations are obtained by directly contacting third parties to verify
account balances and transactions. They provide independent verification of
information in the financial statements.
10. Contents of MRL:
o Question: What key representations are included in the Management
Representation Letter?
o Answer: Representations include confirmation of provided information,
completeness of transactions, compliance with laws, and disclosure of contingent
liabilities.
11. Subsequent Accounts Payable:
o Question: How do you audit subsequent accounts payable?
o Answer: Review post-period payments, verify supporting documentation, and
ensure proper cut-off to confirm liabilities are recorded in the correct period.
12. Tax Audit Report:
o Question: What are the key points you review in a tax audit report?
o Answer: Key points include compliance with tax laws, accuracy of tax
calculations, verification of deductions, and reconciliation of tax returns with
financial statements.
13. Depreciation on Standby Asset:
o Question: How do you charge depreciation on a standby asset?
o Answer: Depreciation is charged based on the asset's useful life and the method
chosen (e.g., straight-line or reducing balance), considering any idle periods if
significant.
 CA Ganesh Vijay Sai

14. IND AS 3 Methods:

o Question: Explain the direct and indirect methods of cash flow statement
preparation under IND AS 3.
o Answer: The direct method lists cash inflows and outflows directly. The indirect
method adjusts net profit for changes in working capital and non-cash
transactions.
15. Communication with TCWG:
o Question: What key matters do you discuss with Those Charged with
Governance (TCWG)?
o Answer: Discuss audit scope, significant findings, internal control deficiencies,
audit adjustments, and other relevant issues affecting the financial statements.
16. IND AS 115, 116 Case Study:
o Question: Provide a case study where you applied IND AS 115 and IND AS 116.
o Answer: Discuss a scenario involving revenue recognition under IND AS 115
(e.g., multi-year contracts) and lease accounting under IND AS 116 (e.g.,
identifying and measuring lease liabilities).
17. CARO Clauses:
o Question: Explain five significant clauses in the Companies (Auditor's Report)
Order (CARO) 2020.
o Answer: Discuss clauses such as fixed assets, inventory, loans, compliance with
laws, and related party transactions, focusing on audit procedures for each.
18. Audit of Legal Expenses:
o Question: How do you audit legal expenses?
o Answer: Review invoices, agreements, and correspondence, verify completeness
and accuracy, and ensure proper disclosure of any contingent liabilities.
19. ICFR Reporting:
o Question: How do you evaluate the effectiveness of Internal Controls over
Financial Reporting (ICFR)?
o Answer: Assess control design and implementation, perform testing, identify
deficiencies, and report significant issues to management and TCWG.
20. PtoP Process:
o Question: Describe the Procure to Pay (PtoP) process and key controls you test.
o Answer: The PtoP process includes requisition, procurement, receiving, and
payment. Key controls include authorization, three-way match, and segregation of
duties.
 CA Ganesh Vijay Sai

21. Leading the Team:

o Question: How do you lead an audit team effectively?
o Answer: Set clear objectives, assign tasks based on skills, provide guidance,
monitor progress, and maintain open communication to resolve issues promptly.
22. Section 185 of Companies Act:
o Question: Explain the provisions of Section 185 of the Companies Act regarding
loans to directors.
o Answer: Section 185 restricts companies from providing loans to directors or
entities in which directors are interested, with certain exceptions and approvals
required.
23. CARO and IFC Threshold Limits:
o Question: What are the threshold limits for CARO and IFC reporting?
o Answer:
CARO 2020 Applicability:
 CARO 2020 applies to all companies except:
 Banking companies.
 Insurance companies.
 Section 8 companies (companies with charitable objectives).
 One Person Companies (OPCs).
 Small companies.
 Private companies that meet all the following conditions:
1. Not a subsidiary or holding company of a public company.
2. Paid-up capital and reserves do not exceed ₹1 crore AND
3. Total borrowings do not exceed ₹1 crore at any point
during the financial year AND
4. Total revenue does not exceed ₹10 crore during the
financial year.
IFC Reporting Applicability:
 All companies, regardless of size, nature of business, or industry, are
required to have an adequate system of internal financial controls (IFC) in
place. However, certain exemptions exist:
 One Person Companies (OPCs).
 Small companies.
 Private companies with:
1. Turnover less than ₹50 crore AND
 CA Ganesh Vijay Sai

2. Aggregate borrowings less than ₹25 crore at any point

during the financial year
24. Qualified and Adverse Opinion:
o Question: When would you issue a qualified opinion versus an adverse opinion?
o Answer: A qualified opinion is issued when there are material misstatements that
are not pervasive. An adverse opinion is issued when misstatements are both
material and pervasive, leading to unreliable financial statements.
25. Deferred Tax:
o Question: What is deferred tax, and how do you audit deferred tax assets and
liabilities?
o Answer: Deferred tax arises from temporary differences between accounting and
tax treatments. Audit involves reviewing calculations, ensuring proper
recognition, and verifying disclosures.