Preview Questions External Auditor | Role Specific Skill

Question 1: Which auditing procedure is most appropriate for assessing the adequacy of the capital adequacy ratio in BFSI institutions?

Which action should you take?

Choose only one option

Analyze internal management controls and skip regulatory guidance

Ignore capital adequacy and focus solely on profitability

Only rely on unaudited management reports

Review capital calculations and risk-weighted assets under regulatory guidelines

Question 2: How should an external auditor test the adequacy of internal controls in a BFSI audit?

Which action should you take?

Choose only one option

Analyzing the company's budgetary controls

Performing control testing and evaluating the design and effectiveness of controls

Relying on the internal audit reports only

Reviewing the organizational chart to assess the control environment

Question 3: When performing a risk assessment in an external audit, how does the auditor evaluate the risk of significant misstatements due to accounting policy changes in the BFSI industry?

Which action should you take?

Choose only one option

Focus only on the timing of the policy change without assessing its effects

Rely solely on management's assertion of policy changes without evaluating their impact

Review the accounting policy changes in detail and assess their impact on the financial statements

Compare the policy changes to industry standards without analyzing the potential impact on the bank's financial statements

Question 4: 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 5: In assessing the risk of operational failure in a financial institution, which of the following would be considered a high-risk area?

Which action should you take?

Choose only one option

Systemic failure of IT infrastructure or core banking systems

Sufficient internal controls in the accounting department

A comprehensive training program for staff

Well-established and diversified operational processes

Question 6: What is the most effective way to assess credit risk during a risk assessment for a BFSI audit?

Which action should you take?

Choose only one option

Comparing the loan portfolio to industry benchmarks

Reviewing the company's loan underwriting and approval processes

A combination of A and B

Analyzing the company's credit ratings and exposure to high-risk sectors