Preview Questions External Auditor | Role Specific Skill

Question 1: What is the most effective approach to assessing the accuracy of loan loss provisions in an audit for a financial institution?

Which action should you take?

Choose only one option

Rely solely on management's calculations without further testing

Perform no testing and accept management's judgment on provisions

Review historical data and evaluate the adequacy of loan loss reserves based on credit risk models

Only examine the loan loss provisions at year-end

Question 2: How does the external auditor report the going concern assumption in the audit of a financial institution?

Which action should you take?

Choose only one option

By evaluating whether the bank can continue operating for the foreseeable future and disclosing any doubts

Ignoring the going concern assumption if no immediate issues are identified

Disregarding it as it does not impact the financial statements

Only mentioning the going concern assumption in the management letter

Question 3: In a BFSI audit, what is the role of the external auditor in evaluating compliance with the Sarbanes-Oxley Act (SOX)?

Which action should you take?

Choose only one option

Ensuring the adequacy of internal controls over financial reporting

Reviewing the bank's financial statement disclosures

Verifying the accuracy of the bank's loan loss provisions

Auditing the company's market risk management policies

Question 4: What approach should an external auditor take when evaluating the effectiveness of an institution's asset-liability management in a BFSI audit?

Which action should you take?

Choose only one option

Reviewing the interest rate sensitivity of the bank's assets and liabilities

Comparing the institution's capital adequacy ratio with regulatory requirements

All of the above

Assessing the liquidity ratios and stress testing results

Question 5: What is the role of substantive testing in financial audits of BFSI companies?

Which action should you take?

Choose only one option

To ensure that financial reports follow industry standards

To confirm the accuracy of tax filings

To assess the effectiveness of internal audit functions

To detect material misstatements in financial statements

Question 6: What is the most reliable method for auditing the proper classification of financial assets and liabilities in accordance with IFRS?

Which action should you take?

Choose only one option

Verify that assets and liabilities are classified correctly based on their nature and usage

Test the valuation of assets and liabilities without checking their classification

Focus only on the overall presentation of financial statements without detailed classification checks

Compare current classifications with prior periods without ensuring compliance with IFRS