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How will you do the audit of payroll or employee benefit expenses?

● Summarise the pay register on a month wise basis. ● Perform the analysis of month wise variance of gross pay and inquire reasons for major changes which are not substantiated by change in head count or payscale. ● Perform head count reconciliation procedure to match the number of employees each month i.e. (Opening employees…...

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What are the criteria to define a reportable segment as per IND AS 108?

An entity should report separately information about an operating segment that meets any of the following quantitative thresholds: ● Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10% or more of the combined revenue, internal and external, of all operating segments. ● The absolute amount of its reported…...

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What are the audit procedures for unusual Journal entries testing?

● Journal entries made to unrelated, unusual, or seldom-used accounts. ● Journal entries made by individuals who typically do not make journal entries. ● Journal entries containing consistent ending numbers (“999”). ● Journal entries with line items containing specific wording. ● Unbalanced journal entries. ● Journals recorded at the end of the period or as…...

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What are the audit procedures for Property, Plant & Equipment testing?

● Reconciling the FAR (Fixed assets register) and GL to ensure the accuracy of the books of accounts. ● Recalculation of the depreciation as per useful life (prescribed in Schedule II of Companies Act, 2013 or as per management estimate) and scrap value. ● TOD of Additions and disposals to ensure the completeness of the…...

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What are the audit procedures for Account Receivables testing?

● Ledgers, Agreements and other related supporting documents are obtained from the client to ensure the completeness & accuracy transaction ● Perform ageing analysis and check whether there is any need for making provision for doubtful debts for long outstanding balances. ● Independent external Confirmations are sent to the customers and their response are noted…...

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Explain the concept of cut off procedure?

Cutoff procedures are undertaken to check whether all income and expenses are reported in the correct accounting period. Simply put, Cut off procedures are performed for separation of transactions from one period to another (say, upto 31st March and after 31st March). This ensures that transactions and events are recorded in the correct accounting period…...

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What is the special purpose audit report and general purpose audit report?

Special Purpose Report: A special-purpose financial report is intended for presentation to a limited group of users or for a specific purpose. For example, special-purpose financial statements are prepared for tax reporting, bank reporting, and industry-specific reporting. Most SME’s (Small to Medium Enterprises) and not for-profit entities will produce a simple profit and loss and…...

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What are the components of Materiality? /What is Performance Materiality and why is it set?

Materiality are of 3 types: Overall Materiality (OM)- The level which represents the significant level in the company’s financial statements, which can influence the decision making of the users of the company’s financial statement as a whole. Performance Materiality(PM) – The amount set by us as auditor at less than the Overall Materiality, so that…...

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What do you understand by Materiality? How and on what basis an auditor assesses materiality?

The materiality threshold in audits refers to the benchmark used to obtain reasonable assurance that an audit does not fail to detect any material misstatement that can significantly impact the economic decision of users of financial statements. Determining materiality involves the exercise of professional judgment. A percentage is often applied to a chosen benchmark as…...

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What are account balance assertions ?

Account balance assertions apply to the balance sheet items, such as assets, liabilities, and shareholders’ equity. There are four types of account balance assertions: ● Existence: The assets, equity balances, and liabilities exist at the period ending time. ● Completeness: The assets, equity balances, and the liabilities that are completed and supposed to be recorded…...

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What are Transaction level assertions?

Transaction level assertions are made in relation to classes of transactions, such as revenues, expenses, dividend payments, etc. There are five types of transaction-level assertions: ● Occurrence: Transactions that are recognized in the financial records have occurred, i.e.,did it really happen? ● Completeness: Transactions that are completed and supposed to be recorded have beenrecognized in…...

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Caro amendments related to CSR

The Companies (Auditor’s Report) Order (CARO) is a regulatory framework in India that mandates the reporting requirements for statutory auditors of companies. The latest amendments to CARO, known as CARO 2020, introduced certain changes related to Corporate Social Responsibility (CSR) reporting. Here are some key provisions: 1. Assessment of CSR Expenditure: Under CARO 2020, auditors…...

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Non-financial considerations for make or buy decision

In addition to financial considerations, there are several non-financial factors that organizations should take into account when making a make or buy decision. These non-financial considerations play a significant role in determining the optimal choice and ensuring the long-term success of the decision. Here are some key non-financial factors to consider: 1. Core Competencies: Assessing…...

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Difference between marginal costing and standard costing?

Marginal costing and standard costing are two different approaches used in cost accounting to analyze and control costs. Here’s a brief explanation of the differences between the two: 1. Definition and Focus: – Marginal Costing: Marginal costing focuses on analyzing the behavior of costs in relation to changes in production volume. It segregates costs into…...

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Why audit committee is entrusted with RPT approval and not any other committee

The audit committee is typically entrusted with the approval and oversight of related party transactions (RPTs) due to its specific role and responsibilities within an organization. The audit committee is a subcommittee of the board of directors and is composed of independent directors who possess financial expertise and knowledge of corporate governance practices. There are…...

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Non-financial considerations for make or buy decision

When evaluating the make or buy decision, it’s crucial to consider not only financial factors but also non-financial considerations that can have a significant impact on the decision-making process. Some key non-financial considerations include: 1. Control and Flexibility: Making a product or performing a service in-house gives the organization greater control and flexibility over the…...

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Also what ratios (liquidity, leverage, etc.) you’ll look into as relationship person and what as credit person while on boarding a new corporate.

As a relationship person, when onboarding a new corporate client, the key ratios I would look into would primarily be liquidity and profitability ratios. Liquidity ratios such as the current ratio and quick ratio would help assess the company’s ability to meet its short-term obligations. These ratios indicate the availability of liquid assets to cover…...

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And also what’s your understanding of the difference between credit and relationship manager.

In the banking industry, the roles of a credit manager and a relationship manager are distinct but interconnected. While both roles involve client engagement and managing client relationships, they focus on different aspects of the banking process. A credit manager primarily deals with the analysis and evaluation of creditworthiness and risk associated with lending activities…....

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Difference between capital expenditure and revenue expenditure along with examples and with case study

Capital expenditure refers to the expenses incurred by a company for acquiring, improving, or extending its fixed assets, which are expected to provide benefits over multiple accounting periods. These expenditures are capitalized on the balance sheet and are typically large in nature. Examples of capital expenditures include the purchase of property, plant, and equipment (PP&E),…...

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In case of export of goods how would u recognise revenue

In the case of export of goods, the recognition of revenue follows certain principles and guidelines outlined in accounting standards. Revenue from export sales is typically recognized when the following criteria are met: 1. Identification of the contract: The existence of a legally enforceable contract between the exporter and the customer is essential. The contract…...

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Why do you think audit should be conducted? If there was no statutory requirement under companies act, would you still do an audit?

Audit is conducted to provide assurance and enhance the credibility of financial information presented by an organization. It serves several important purposes: 1. Compliance: Audit ensures that the financial statements and records of an organization comply with applicable laws, regulations, and accounting standards. It helps in verifying the accuracy and completeness of financial information, thereby…...

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Planning and Execution in audit

Planning and execution are essential components of the audit process. Here’s an overview of how they are approached: 1. Planning: Audit planning involves understanding the client’s business, identifying risks, and developing an audit strategy. This includes: – Client Assessment: Assessing the client’s industry, business operations, and internal control systems to understand the key risks and…...

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Why stat audit? Why big 4 even after hectic hours?

Statutory audit offers several benefits that make it an attractive choice for professionals, especially in the context of Big 4 firms: 1. Professional Growth: Statutory audit provides an opportunity to work with diverse clients across various industries, which enhances professional growth and expertise. It allows auditors to gain a deep understanding of different business models,…...

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How to manage a team and client

Managing a team and client effectively requires a combination of strong leadership skills, effective communication, and a customer-centric approach. Here are some key strategies for managing both aspects: 1. Clear Communication: Maintain open and transparent communication channels with both your team members and clients. Clearly articulate expectations, project goals, and deadlines to ensure everyone is…...

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What do you know about FP&A?

FP&A stands for Financial Planning and Analysis. It is a crucial function within an organization that focuses on financial forecasting, budgeting, and analysis to support strategic decision-making. FP&A professionals work closely with senior management and other departments to develop financial plans, evaluate performance, and provide insights into the financial health of the company. In FP&A,…...

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Tell us about your Article ship challenges.

During my articleship, I encountered various challenges that allowed me to grow both personally and professionally. One of the key challenges I faced was managing tight deadlines and multiple client engagements simultaneously. As an article trainee, I had to balance my time effectively to ensure timely completion of audit assignments and other responsibilities. Another challenge…...

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Tell us about your articleship focus.

During my articleship, my focus was primarily on gaining practical experience and exposure in the field of auditing and financial accounting. I worked under the guidance of experienced professionals in a reputed firm, which provided me with valuable opportunities to enhance my skills and knowledge. One of my main areas of focus during my articleship…...

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Common Observations or audit points in Procure to Pay Process

During the audit of the Procurement-to-Pay (P2P) process, there are several common issues or observations that auditors often encounter. These issues can lead to inaccuracies, inefficiencies, compliance breaches, and financial losses. Here are some common audit issues or observations in the Procurement-to-Pay process: 1. Lack of Segregation of Duties (SoD): One of the primary concerns…...

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Tell us about your observations in audit.

Here are some examples you can use 1. Misclassification of Air Conditioners/other appliances as Office Equipment ACs, whether installed in Factory or in Office should be treated as Plant and Machinery with 15 Years useful life. But they are often misclassified as Office Equipment with 5 years useful life under Schedule II of Companies Act…....

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What have you seen in our annual report?

1. Financial Performance: This involves assessing the company’s financial statements, including the balance sheet, income statement, and cash flow statement, to understand the company’s profitability, liquidity, and financial health. 2. Business Operations: The annual report provides insights into the company’s core business operations, including its products or services, market presence, and competitive position. It may…...

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How to estimate NRV? What is the NRV if your competitor is selling same product at lower price?

Estimating the Net Realizable Value (NRV) involves assessing the expected selling price of an item less any estimated costs necessary to make the sale. When a competitor is selling the same product at a lower price, it does not directly affect NRV. However, if there is a significant difference, it may be an indication that…...

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How will you verify cash if its not possible to attend physical verification? Any specific procedures for covid?

In situations where it is not possible to attend physical verification of cash, such as during the COVID-19 pandemic or other circumstances, auditors can employ alternative procedures to verify the existence and accuracy of cash balances. To verify cash: 1. Ask for the cash to be deposited in a bank and withdrawn 2. Do a…...

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What is Bank Confirmation? Who Sends it?

Bank confirmation, also known as a bank confirmation letter or bank confirmation request, is a formal inquiry sent by the auditor to the company’s financial institution(s) to obtain independent verification of the client’s bank balances, loans, and other related information. The bank confirmation serves as an important audit procedure to confirm the accuracy and completeness…...

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Which balance would you like to verify the most while conducting statutory Audit? What is BRS (Bank Reconciliation Statement)? How do you use BRS in audit of cash balance?

As a statutory auditor, one of the most critical balances to verify is the cash balance. Cash is a highly liquid asset and is susceptible to misappropriation or misstatement, making it essential to ensure its accuracy. To verify the cash balance, an auditor may adopt the following procedures: 1. Bank Reconciliation: The auditor performs a…...

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How do you check completeness assertion while performing audit of accounts payable?

When performing an audit of accounts payable, ensuring the completeness assertion is crucial. Here are some procedures an auditor may adopt to check completeness: 1. Review of Purchase Requisitions and Orders: The auditor can examine the company’s purchase requisitions and purchase orders to verify that all authorized purchases have been properly recorded. This helps ensure…...

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How will you test the warranty in revenue?

When testing the warranty in revenue, the auditor may adopt the following procedures to ensure its accuracy and completeness: 1. Review of Warranty Policies: The auditor should understand the company’s warranty policies and procedures. This includes reviewing the terms and conditions of warranties, the length of the warranty period, and any specific criteria or limitations…....

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There are 50 bank accounts having no balance, 120 bank accounts having very minimum balance then what procedures will you adopt to verify them?

When dealing with bank accounts that have no balance or very minimum balance, the auditor may adopt the following procedures to verify them: 1. Inquiry and Documentation Review: The auditor can inquire with the management about the purpose and nature of these bank accounts. Additionally, they can review the account opening documents, bank statements, and…...

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Suppose the company is a big brand in Pen manufacturing industry holding more than 150 bank accounts having balance of 1000cr. What audit procedures will you adopt? Will you verify all the bank accounts or else do some sampling checks? Reason if you verify all the bank accounts?

When dealing with a company that has a large number of bank accounts and a significant balance, it may not be practical or efficient to verify each individual bank account during the audit process. In such cases, auditors often employ sampling techniques to select a representative sample of bank accounts for detailed verification. The decision…...

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Other than balance confirmation what procedures will you adopt for audit of cash and bank balance?

Apart from balance confirmation, there are several procedures an auditor can adopt for the audit of cash and bank balances. These procedures aim to provide sufficient and appropriate audit evidence regarding the existence, ownership, completeness, and valuation of cash and bank balances. Some of these procedures include: 1. Bank Reconciliation: Obtain and review bank reconciliations…...

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If a company have two Government companies as clients which are comprising of almost 30% of trade receivables and they are not responding to management at all, how will you respond as an auditor?

As an auditor, if two government companies comprising approximately 30% of trade receivables are not responding to the management, it is a matter of concern that requires appropriate action. The following steps can be taken in response to this situation: 1. Communication: Engage in direct communication with the management of the audited company to express…...

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If you have debtors balance of Rs 2 crore, and having more than 200 customers then as Statutory Auditor of the Company how will you verify the same?

As the Statutory Auditor of the company, verifying a debtors balance of Rs 2 crore with more than 200 customers requires a systematic approach to ensure accuracy and completeness. The following steps can be taken: 1. Planning: Develop an audit plan specifically tailored to address the large number of customers and the significant debtors balance…....

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How you deal if the balance confirmation is mismatch while conducting audit of trade receivables.

When encountering a mismatch in balance confirmation while auditing trade receivables, the following steps can be taken to resolve the discrepancy: 1. Review Documentation: Carefully review the correspondence between the audited entity and its customers regarding the balance confirmation requests and responses. Examine the terms, dates, and any relevant supporting documentation, such as invoices, contracts,…...

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How do you value Raw material as per relevant IND AS?

The valuation of raw materials under the relevant Indian Accounting Standards (Ind AS) follows the principle of “lower of cost and net realizable value” (LCNRV). This principle is similar to the “lower of cost or market” (LCM) principle under the previous Indian Generally Accepted Accounting Principles (GAAP). According to Ind AS 2, Inventories, raw materials…...

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What are the DTA creation criteria’s as per Ind AS and how they are different from AS?

Deferred Tax Assets (DTAs) are recognized under both the previous Indian Accounting Standards (AS) and the current Indian Accounting Standards (Ind AS), but there are some differences in the criteria for their recognition. Under AS, DTAs were recognized only to the extent that there was virtual certainty of sufficient future taxable income against which the…...

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Difference between virtual certainty and reasonable certainty?

In the context of financial reporting and accounting, “virtual certainty” and “reasonable certainty” are terms used to describe the level of confidence or likelihood associated with the recognition and measurement of certain events or amounts. While they both imply a high degree of confidence, there is a subtle difference between the two: 1. Virtual Certainty:…...

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On what basis performance materiality is set and what are the criteria to set it or change it? If you want to change it what things are to be kept in mind?

Performance materiality is the level of materiality set for specific accounts or classes of transactions during an audit. It is determined by the auditor based on their professional judgment and considers the overall financial statements’ materiality level. When setting performance materiality, auditors consider several factors: 1. Overall materiality: The materiality level for the financial statements…...

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What do you mean by walkthroughs and control testings?

In the context of auditing, walkthroughs and control testing are two important procedures used to assess the effectiveness of a company’s internal controls. Walkthroughs: A walkthrough is a step-by-step review of a process or system to gain an understanding of its design and operation. It involves following a transaction from its initiation to its final…...

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What is MRL and why it is used and who takes it? If not received, then what will be the effect on audit opinion in audit report?

MRL stands for Management Representation Letter. It is a letter obtained by the auditor from the management of the audited entity. The purpose of the MRL is to document management’s acknowledgement of its responsibility for the financial statements and to confirm various representations made to the auditor during the audit process. The MRL is used…...

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If debtors’ confirmations are not received, then how would you deal with this kind of situation?

If faced with a situation where debtors’ confirmations are not received during an audit, the following steps can be taken: 1. Alternative Audit Procedures: In the absence of debtor confirmations, the auditor can employ alternative audit procedures to obtain sufficient and appropriate audit evidence. This may involve performing analytical procedures, such as comparing the debtor…...

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Difference between CIBIL and crisil rating.

CIBIL (Credit Information Bureau India Limited) and CRISIL (Credit Rating Information Services of India Limited) are both important entities in the financial industry, but they serve different purposes and have distinct roles: CIBIL is a credit information company that collects and maintains credit-related data of individuals and companies. It operates as a credit bureau and…...

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What are DSCR and its calculation? Ideal Ratio and its relevance.

DSCR stands for Debt Service Coverage Ratio. It is a financial metric used by lenders to assess a borrower’s ability to meet their debt obligations, specifically interest and principal payments. The DSCR measures the cash flow available to cover debt payments, providing an indication of the borrower’s capacity to service their debt. The calculation of…...

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What is important yardstick in assessment of Term Loan?

One important yardstick in the assessment of a term loan is the Debt Service Coverage Ratio (DSCR). DSCR is a financial metric used by lenders to evaluate a borrower’s ability to generate sufficient cash flow to meet their debt obligations. It provides an indication of the borrower’s capacity to repay the loan. DSCR is calculated…...

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What are IRAC norms?

IRAC (Income Recognition, Asset Classification, and Provisioning) norms are guidelines issued by the Reserve Bank of India (RBI) to ensure prudent and transparent recognition of income, classification of assets, and provisioning for potential loan losses by banks and financial institutions. These norms play a crucial role in maintaining the stability and integrity of the banking…...

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Why are Debtor days and Inventory days calculated?

Debtor days and inventory days are calculated to assess the efficiency and effectiveness of a company’s working capital management. These ratios provide valuable insights into the company’s liquidity, cash flow, and operational efficiency. Debtor days, also known as accounts receivable days or average collection period, measures the average number of days it takes for a…...

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How will you analyse the annual report of a company?

When analyzing the annual report of a company, several key areas should be considered to gain insights into the company’s financial performance, strategies, and overall health. Here is a structured approach to analyzing an annual report: 1. Financial Statements: Review the balance sheet, income statement, and cash flow statement to assess the company’s financial position,…...

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What ratios you will look for when giving credit?

When assessing the creditworthiness of a company, several key ratios are commonly considered to evaluate its financial health and ability to repay its obligations. Here are some important ratios to consider when giving credit: 1. Current Ratio: This ratio indicates a company’s ability to cover its short-term obligations with its short-term assets. A higher current…...

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Bottom Up Budgeting Vs Top down Budgeting.

Bottom-up budgeting and top-down budgeting are two different approaches to the budgeting process within an organization. Here’s a brief explanation of each: Bottom-up Budgeting: In bottom-up budgeting, the budget is created by involving various departments or teams within the organization. Each department or team prepares its own budget based on its specific needs, objectives, and…...

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How do you ensure completeness and accuracy of financial statements?

Ensuring the completeness and accuracy of financial statements is crucial to maintain the integrity of financial reporting. Here are some key measures that can be taken to achieve this: 1. Robust Internal Controls: Implementing strong internal controls is essential to ensure the completeness and accuracy of financial statements. This includes segregation of duties, proper authorization…...

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What all constitutes Financial Statement?

Financial statements are key financial documents that provide an overview of a company’s financial performance and position. The main components of financial statements include: 1. Income Statement: Also known as the statement of operations or statement of comprehensive income, the income statement shows the company’s revenues, expenses, gains, and losses over a specific period. It…...

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What do you understand by FP&A?

FP&A stands for Financial Planning and Analysis. It is a function within an organization that focuses on financial planning, budgeting, forecasting, and financial analysis. The main purpose of FP&A is to support strategic decision-making by providing accurate and timely financial information and insights to management. In FP&A, professionals work closely with various departments, such as…...

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Why is goodwill impaired?

Goodwill impairment occurs when the value of a company’s goodwill asset on the balance sheet is determined to be lower than its recorded amount. The impairment is recognized when there is a significant decline in the company’s business or when the fair value of the reporting unit carrying the goodwill falls below its carrying value…....

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What is the difference between accounts receivable and deferred revenue?

Accounts receivable and deferred revenue are both important financial concepts related to revenue recognition, but they represent different aspects of a company’s financial transactions: Accounts Receivable: Accounts receivable (AR) represents the money owed to a company by its customers for goods or services that have been delivered but not yet paid for. It arises when…...

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A company has had positive EBITDA for the past 10 years, but it recently went bankrupt. How could this happen?

The scenario you presented, where a company has had positive EBITDA for the past 10 years but recently went bankrupt, may seem contradictory at first. However, it is important to understand that EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is just one measure of a company’s financial performance and does not capture the full…...

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Why due diligence is performed on Audited Financials?

Performing due diligence on audited financials is essential to gain a deeper understanding of a company’s financial health and identify any potential risks or inaccuracies. Here are the key reasons why due diligence is conducted on audited financials: 1. Verification of Financial Information: Audited financial statements are prepared by independent auditors who examine and verify…...

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What are free cash flows of firm?

Free cash flows of a firm refer to the cash generated by its operations that is available for distribution to investors, debt repayment, or reinvestment in the business. It represents the cash flow that remains after deducting operating expenses, taxes, and capital expenditures necessary to maintain and expand the company’s operations. Here are some key…...

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How do you value a Company?

Valuing a company involves assessing its worth or intrinsic value, which can be determined using various methods. Here are some common approaches to company valuation: 1. Comparable Company Analysis: This method involves comparing the company to similar publicly traded companies or recent transactions in the same industry. Key financial ratios, such as price-to-earnings (P/E), price-to-sales…...

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Why is income statement not affected by changes in inventory?

The income statement is not directly affected by changes in inventory because it follows the matching principle of accounting. The matching principle states that expenses should be recognized in the same period as the revenues they help generate. As a result, the income statement primarily focuses on the recognition of revenues and expenses incurred during…...

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What is working capital, and which are the different types of working capital?

Working capital refers to the difference between a company’s current assets and its current liabilities. It represents the funds available to cover day-to-day operations and is a key indicator of a company’s liquidity and short-term financial health. Working capital is essential for meeting short-term obligations, managing inventory, funding operational expenses, and sustaining ongoing business activities…....

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How long usually it take to collect accounts receivable?

The time it takes to collect accounts receivable can vary depending on various factors such as industry practices, company policies, customer payment terms, and the efficiency of the company’s credit and collection processes. In general, the collection period for accounts receivable is measured in days and is commonly referred to as the “Days Sales Outstanding”…...

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Which method would company use to buy other company – cash, stock or debt. Assuming all else is equal.

Usually, the shareholders of the target prefer getting Cash rather than equity. The acquirer prefers issuing shares. The acquire should issue shares in case the purchase consideration is same in all cases – this is the least risky option. However if there is excess cash and no investment opportunity, cash may be used The method…...

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Which company would have a higher beta: A manufacturing company or a technology company?

In general, a technology company would likely have a higher beta compared to a manufacturing company. Beta is a measure of a stock’s volatility or sensitivity to market movements. A beta greater than 1 indicates higher volatility, while a beta less than 1 suggests lower volatility compared to the overall market. Technology companies are often…...

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CUP method?

The Comparable Uncontrolled Price (CUP) method is a transfer pricing technique used to determine the arm’s length price for transactions between related entities. It involves comparing the price of a controlled transaction with the price of a similar transaction between unrelated parties (uncontrolled transaction). The goal is to ensure that the pricing of intercompany transactions…...

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How to check purchase whether real or inflated?

To check whether a purchase is real or inflated, you can perform the following procedures during an audit: Review purchase orders: Examine the purchase orders for accuracy, completeness, and proper authorization. Ensure that they include detailed descriptions of the goods or services being purchased, quantities, prices, and delivery terms. Verify supplier existence and credibility: Confirm…...

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What is internal control?

Internal control refers to the system of policies, procedures, practices, and structures established within an organization to safeguard its assets, ensure accuracy and reliability of financial reporting, promote operational efficiency, and comply with laws and regulations. The primary goal of internal control is to minimize risks and provide reasonable assurance that the organization’s objectives are…...

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Explain Financial Instruments?

Financial instruments are contracts that give rise to a financial asset in one entity and a financial liability or equity instrument in another entity. They encompass a broad range of financial assets and liabilities, such as cash, trade receivables, loans, bonds, derivatives, and equity instruments. These instruments represent a key aspect of an entity’s financial…...

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What are the major audit areas?

Major audit areas, also termed audit components or cycles, encompass distinct sections of an organization’s financial statements and operations, focal points for auditors during audits. These areas facilitate methodical assessment of financial statements to ensure precision, adherence to accounting standards, and robust internal controls. Key audit areas encompass: Cash and Cash Equivalents: Validation of cash…...

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What is CIF and FOB?

CIF (Cost, Insurance, and Freight) and FOB (Free On Board) are terms used in international trade to define the responsibilities and costs associated with the shipment and delivery of goods between buyers and sellers. These terms indicate who is responsible for various expenses, risks, and when ownership of the goods transfers from the seller to…...

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How Deferred Tax Liability Works

As per Indian Accounting Standard (Ind AS) 12, a deferred tax liability documented on a company’s balance sheet signifies an impending tax payment obligation in the future. This liability is computed by multiplying the company’s expected tax rate by the variance between its taxable income and accounting profit before taxes. The deferred tax liability accounts…...

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Explain deferred taxes?

A Deferred Tax Liability is an entry on a company’s balance sheet, in accordance with Indian Accounting Standard (Ind AS) 12, signifying taxes that are payable in the future due to timing differences between their accrual and actual payment. The deferral arises from the contrasting timing of tax recognition and payment. Notably, a common instance…...

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Tell us something about operating cycle?

The operating cycle, also known as the cash conversion cycle, is a vital financial metric that measures the time it takes for a company to convert its investments in inventory and other resources into cash flow from sales. It reflects the efficiency of a company’s working capital management and provides insights into how quickly a…...

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When should a company charge goodwill to the profit and loss (P&L) statement? If a company’s revenue-generating potential remains strong and there is no indication of deterioration, would goodwill continue to appear on the balance sheet indefinitely?

Goodwill is only charged to the profit and loss (P&L) statement when there is an indication that its carrying value may be impaired, i.e., when the value of goodwill has decreased due to a loss in its revenue-generating capacity or some other adverse effect. If a company’s revenue-generating potential remains intact and there is no…...

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TOL/ TNW

The ratio of Total Outside Liabilities (TOL) to Tangible Net Worth (TNW) is a financial metric used to assess a company’s financial leverage and risk. It provides insights into the proportion of a company’s total liabilities that are financed by its tangible net worth, which represents the net value of its tangible assets after deducting…...

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Discuss GDP rate?

Gross Domestic Product (GDP) rate is a key economic indicator that measures the overall size and growth of a country’s economy over a specific period. It represents the total value of all goods and services produced within a country’s borders during a given time, typically measured on an annual basis. The GDP rate provides valuable…...

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Difference between 194Q v 206 1H?

Section 194Q: Section 194Q was introduced by the Finance Act, 2021, and it applies to certain buyers who purchase goods from a resident seller. The key points are: Applicability: This section applies if the buyer’s turnover or gross receipts in the preceding financial year exceed Rs. 10 crores. Transaction Type: It is applicable to the…...

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Suppose we build a tower and spent 5 lakhs to construct and its useful life is 10 years, after two years the government ordered to demolish the tower , so we have extracted the tower and placed it at the nearby location , and the expenditure for this relocation would come to 1 lakh. How to record all of these?

To record the construction, demolition, and relocation of the tower, the following steps should be taken: Record the initial construction of the tower: Debit the Property, Plant, and Equipment (PPE) account for the cost of construction, which is 5 lakhs. Credit the Cash/Bank account for the same amount. Record the depreciation of the tower: Debit…...

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Which items in financial statements help you judge the financial stability?

Solvency ratios are financial metrics that provide insights into a company’s ability to meet its long-term financial obligations and remain financially stable over time. These ratios focus on the company’s debt levels in relation to its assets, equity, and earnings. Here are some key solvency ratios that help assess financial stability: Debt-to-Equity Ratio: This ratio…...

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Difference between 115BAA and BAB?

Section 115BAA: Section 115BAA of the Income Tax Act pertains to the concessional tax regime for domestic companies. It allows domestic companies the option to pay income tax at a reduced rate of 22% (plus applicable surcharge and cess) if they do not claim certain deductions and exemptions. The reduced rate is applicable for companies…...

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Suppose there is an inventory costing 100, cash discount is 2, will it be added to cost?

Under Indian Accounting Standards (Ind AS), cash discounts are generally considered a reduction of the purchase cost of inventory and are deducted from the cost of the inventory rather than added to it. Reference: Ind AS 2, “Inventories” Paragraph 11 of Ind AS 2 states that the cost of inventory should include all costs of…...

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