Preview Questions External Auditor | Role Specific Skill

Question 1: During the risk assessment phase of an audit, how should an auditor address the risk of misreporting related to financial instruments?

Which action should you take?

Choose only one option

By relying on third-party reports without testing

By focusing on unlisted financial instruments exclusively

By ignoring financial instruments and focusing on traditional loans

By reviewing the fair value estimation processes for financial instruments

Question 2: How should an external auditor investigate irregularities in a bank's non-core business activities?

Which action should you take?

Choose only one option

Focusing only on core activities and ignoring non-core business functions

Reviewing the activities briefly without assessing their impact on the bank's financial health

By examining whether the activities are properly disclosed and whether they affect the overall financial performance

Ignoring irregularities if they fall within normal operational thresholds

Question 3: How should an external auditor assess the risk of incorrect accounting treatments for complex financial products like asset-backed securities?

Which action should you take?

Choose only one option

Review only the market price movements of these securities

Evaluate the assumptions and inputs used in the valuation models for these securities

Focus solely on the cash flows associated with these products

Compare the asset-backed securities to industry peers without testing assumptions

Question 4: 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 5: Which of the following is a key requirement under the Dodd-Frank Act for external auditors assessing financial institutions?

Which action should you take?

Choose only one option

Stress testing and risk management evaluations

Compliance with the Bank Secrecy Act (BSA)

Reporting any discrepancies in shareholder voting rights

Adherence to Basel III capital adequacy standards

Question 6: What is the auditor's responsibility when documenting the audit trail for transactions that affect the balance sheet in BFSI?

Which action should you take?

Choose only one option

Ignoring the audit trail for transactions under a set financial threshold

Only documenting the final financial statements without the supporting transactions

Ensuring there is clear, traceable documentation that links each transaction to its impact on the balance sheet

Focusing on transactions involving only large amounts, disregarding smaller ones