Preview Questions External Auditor | Role Specific Skill

Question 1: How does an external auditor assess the bank's compliance with the Sarbanes-Oxley Act (SOX) in terms of financial reporting?

Which action should you take?

Choose only one option

By reviewing the bank's loan provisioning methods

By checking the operational effectiveness of branches in high-risk areas

By evaluating the bank's adherence to risk-based pricing policies

By testing the effectiveness of internal controls over financial reporting

Question 2: When conducting an investigation into discrepancies in financial statements, what should the external auditor's first step be?

Which action should you take?

Choose only one option

Asking management to provide their explanation without further analysis

Understanding the source of discrepancies through detailed inquiry

Immediately adjusting the financial statements for accuracy

Performing analytical procedures on the overall financials

Question 3: How should an external auditor investigate the reason behind a significant decrease in the liquidity ratios of a BFSI institution?

Which action should you take?

Choose only one option

By analyzing changes in the institution's debt-to-equity ratio

By reviewing the institution's short-term liabilities and asset composition

By assessing the institution's compliance with regulatory liquidity requirements

By conducting interviews with the institution's liquidity managers

Question 4: What should be the auditor's approach if high-risk areas are identified during a BFSI audit's risk assessment phase?

Which action should you take?

Choose only one option

Continue with a generic audit plan without adjustments

Ignore high-risk areas if materiality thresholds are not breached

Only report on high-risk areas without further audit testing

Focus additional audit resources on high-risk areas and test thoroughly

Question 5: During a financial audit, how do you assess the risk of fraud in the recognition of financial assets?

Which action should you take?

Choose only one option

Test the accuracy of income statements without focusing on asset recognition

Analyze accounting policies and check for unusual patterns or discrepancies

Rely on interviews with senior management to assess potential fraud risks

Focus exclusively on the audit of liabilities rather than assets

Question 6: In which situation would an external auditor document a material weakness in internal controls during an audit of a financial institution?

Which action should you take?

Choose only one option

If the weakness is unrelated to financial reporting, such as HR issues

If there is only a minor control deficiency that does not affect the financials

If a significant deficiency is identified that could result in a material misstatement of the financial statements

If the internal controls are fully effective and there are no weaknesses