You are planning the audit of a new client. How do you understand the business and assess risks?
What the interviewer wants to hear
- Understands the entity, industry, regulation and reporting framework
- Understands internal control and IT environment
- Performs preliminary analytical procedures
- Identifies risks of material misstatement at statement and assertion level, including significant risks
- Sets materiality and designs the audit strategy and plan
Model answer
I start by understanding the entity: what it sells, its customers and suppliers, the industry, regulation such as GST or sector rules, ownership and related parties, and the reporting framework. I read last year’s financial statements, the predecessor auditor’s report and board minutes, and meet management and the audit committee. Then I understand internal control, walking through key processes like sales, purchases and payroll, and the IT environment, such as the ERP and who can post entries. Preliminary analytics, comparing this year with last year and budget, highlight unusual movements. From all of this, following SA 315, I identify risks of material misstatement at the financial statement level and at the assertion level, and mark significant risks such as revenue recognition, management override and complex estimates. I then set materiality and write the overall strategy and detailed plan, linking each risk to specific procedures.
Can you answer it under time pressure?
Take a timed medium round and get scored on every answer.
More medium Auditor questions
- Walk me through how you attend a client’s physical inventory count.
- How do you run an external confirmation process for receivables, and what if customers do not reply?
- How do you design an audit sample, and what affects the sample size?
- How do you perform journal entry testing to address the risk of management override?
- How would you audit trade receivables at year end?
- Describe your audit approach for property, plant and equipment.
- How would you audit payroll expense for a company with 500 employees?
- Why and how would you reconcile revenue in the books with GST returns during an audit?
- What do you communicate to the audit committee during and at the end of an audit?