Audit Firm: Big4 Interview Questions

Here is a list of top 10 interview questions for all the young specialists who wish to join any of the Big four audit firms (in fact any consulting firm) in their future career.

1. Tell me a little about yourself or background?
2. Why KPMG/Deloitte/PwC/E&Y?
3. Why audit/tax/advisory?
4. Are you interviewing with other firms? What’s the response from them?
5. Where do you see yourself in 5 to 10 years?
6. If your friends could pick three words to describe you, what would they be?
7. Do you prefer to travel?
8. What is your biggest weakness/strength?
9. Tell me about a time when you improved a process (or came up with a creative solution)?
10. What do you like best about a career in accounting/auditing?

Audit News Briefing: 08 October 2015

Audit-is-cool is pleased to accumulate and provide its readers with the news on audit and related topics:

October 2, 2015

Accountancy Live

Audit updates: October 2015

Audit tender: KPMG replaces PwC as auditor to Experian

KPMG is the new auditor of consumer credit check company, Experian plc – to replace PwC who have been pioneer external auditors from October 2006.

EU rules: BIS set to issue further consultation on EU audit directive

In accordance with the implementation of the EU Audit Directive and Regulation on 17 June 2016 – the Department for Business, Innovation and Skills (BIS) will publish a formal consultation this autumn focusing on the definition of a public interest entity (PIE), Financial Reporting Council (FRC) powers and the responsibilities of professional bodies. It will also consider issues around the introduction of mandatory retendering and rotation of PIE auditor appointments.

The practical application of the following requirements of the regulations need to be resolved: the types of entities in scope; prohibited non-audit services (NAS) to audit clients; application of independence principles across global accounting firms’ networks; and audit firm and key audit partner rotation.

KPMG ousts PwC as auditor of listed Premier Foods

KPMG will replace PwC after 11 years with Premier Foods. The latter’s statement explains: ‘The audit committee considered an audit tender in 2013 and it was agreed a formal tender exercise would be deferred until 2015, which represents the 11th year of the current auditor’s appointment.’

Please follow link for details:

https://www.accountancylive.com/audit-updates-october-2015

September 30, 2015

Accountancy Age

FRC consults in readiness for EU audit rules

The Financial Reporting Council (FRC) Chief Executive Stephen Haddrill’s statement reads: "The Audit Regulation and Directive is large and complex. We are working closely with professional bodies to make sure the new regulatory regime works as effectively as possible… We must ensure that it builds on the progress made in the UK in recent years in terms of the quality of audit, that competition in the audit market is strengthened in a way that supports innovation, and that the regulatory regime that emerges provides confidence to investors and to firms by being fair, understandable and independent." Please follow link for details: http://www.accountancyage.com/aa/news/2428095/frc-consults-in-readiness-for-eu-audit-rules

September 29, 2015

ICAEW

Press Release: Organise your financial filing says ICAEW

The Institute of Chartered Accountants in England and Wales (ICAEW) thru Tax Faculty Technical Manager Anita Monteith provided guidelines for financial filing, as published in their September 29 press release.

 

These are some of the most common items you should keep on file to keep on top of your financial paperwork:

    Payslips

    P45s/P60

    Dividend statements

    Records of charitable giving

    Bank statements and interest certificates

    Pension letters

    Pension contributions record

    Utility bills

    Mortgage statements

    Tax credit award notices

Please follow link for details: http://www.icaew.com/en/about-icaew/newsroom/press-releases/2015-press-releases/organise-your-financial-filing-says-icaew

Audit Method: Inventory Count

As per the requirements of ISA 501, if inventory is material to the financial statements, the auditor shall obtain sufficient appropriate audit evidence regarding the existence and condition of inventory by: a) attendance at physical inventory counting; b) performing audit procedures over the entity’s final inventory records to determine whether they accurately reflect actual inventory count results.

An Inventory count is carried out by business either: 

• to corroborate information contained in their books and records which is the product of a continuous accounting and control system, or
• to provide an inventory figure for inclusion in financial statement and to use in calculating profit where there is no system of continuous inventory accounting.

 The purposes of the physical inventory observation by auditor are to determine that

 the inventory actually exists,

• the methods of inventory taking are effective in obtaining accurate counts, and
• the inventory is in a usable and salable condition in the normal course of business (e.g., not damaged or obsolete).

It should be remembered that while the auditor will himself carry out test counts and extract certain cut-off information he is primarily there to observe that the client’s procedure are satisfactory. Where the client has an efficient system for inventory records, the physical inventory may be carried out on a continuous basis as opposed to counting everything in one go at the year-end. In the case of a client using the continuous basis, the auditor will still be required to observe a part of this continuous inventory counting.

  

Recommendation

When conducting inventory count at year end special attention needs to be paid by the auditor to apply proper cut off procedures (testing last receiving and shipping transaction), reconciling inventory count to the general ledger, testing high value items, testing inventory in transit, testing the inventory at third party warehouses, testing inventory cost including freight charges and testing for lower of cost or net realizable value/market etc. The working paper should be prepared in such a manner that the information can be easily followed up at the final audit visit. Test counts for example should have been traced to the stock sheets to confirm that they are a proper record of the results of the physical inventory.

Audit Firms: Non-Audit Services

Growth in consultancy among the Big Four is outpacing their traditional tax and audit services, while the firms are also outperforming management consultants. Big Four firms have been steadily rebuilding their consultancy arms through a series of acquisitions in order to compensate for stagnating growth for traditional audit work. The type of non-audit services that audit firms provide ranges widely from audit firm to audit firm. They may include professional advice on transactions (for example, a merger, acquisition or restructuring) as well as tax and broader business advisory services (including performance improvement and information technology). Non-audit services may also include advisory work to assist companies to comply with laws and regulations.

The strict regulations imposed by Sarbanes Oxley Act introduced in USA led to a rash of sales of consultancy divisions by the auditing firms. IBM for instance bought PwC's consulting arm, E&Y Consulting had already sold to Cap Gemini and KPMG did an IPO of KPMG Consulting, which then became BearingPoint. But by the time the Big Four's non-compete clauses expired, typically in three to five years, consulting was back as a high-focus area at the accounting firms.

Soon after the Enron controversy died, the accounting firms realized that regulations could be taken care of if they built a practice that largely consisted of non-audit clients where conflict situations didn't arise; and where there was overlap, they could always avoid selling certain services. And that's what they did. Deloitte recorded a revenue figure of US$ 34.2 billion (2014) with growth for consulting at 10.3 percent. EY advisory grew by 14.4% as compared to assurance growth of 4.5% in 2014. Out of PWC total revenue of US$ 34 billion in 2014 18.8 billion was generated by Tax and Advisory Services. Kpmg total advisory revenues for the year 2014 were up by 10.4% to US$9.09 billion, up from 6.5% in FY13.

That's indeed a high turnaround from 2002 when following Enron's bankruptcy and the dissolution of Arthur Andersen, KPMG and PwC dumped their consulting arms; Ernst & Young had already done so in 2000. The sell-off was a reaction to a toughened up Sarbanes-Oxley Act that restricted the scope of non-audit services that could be offered to audit clients to limit any conflict of interest.

Additional Thoughts

In many countries the codes of corporate governance forbids auditors to provide non-audit services to audit clients if that would present a threat to independence for which no adequate safeguards are available. It is the responsibility of the audit committee being the representative of shareholders to oversee the relationship between the auditor and the company. The audit committee must scrutinize the provision of non-audit services by the audit firms and must have to make sure that the independence and objectivity of the audit firm is not compromised.  

Week-End: The Rope for Young Elephants

As a man was passing by the elephants, he suddenly stopped, confused by the fact that these huge creatures were being held by only a small rope tied to their front leg. No chains, no cages. It was obvious that the elephants could, at any time, break away from their bonds but for some reason, they did not.

He saw a trainer nearby and asked why these animals just stood there and made no attempt to get away. “Well,” trainer said, “when they are very young and much smaller we use the same size rope to tie them and, at that age, it’s enough to hold them. As they grow up, they are conditioned to believe they cannot break away. They believe the rope can still hold them, so they never try to break free.”

The man was amazed. These animals could at any time break free from their bonds but because they believed they couldn’t, they were stuck right where they were. Like the elephants, how many of us go through life hanging onto a belief that we cannot do something, simply because we failed at it once before?

For all the aspiring accountancy career students; “Failure is part of learning; we should never give up the struggle in life.”

Audit News Briefing: 24 September 2015

Audit-is-cool is pleased to accumulate and provide its readers with the news on audit and related topics:

September 21, 2015

Accounting Today

US: PCAOB Strikes Deal with Luxembourg

“This agreement with the Luxembourg audit regulator reflects the strength and depth of our relationships in Europe.” – is the statement of PCAOB Chairman James R. Doty when US accounting and audit regulator, Public Company Accounting Oversight Board has entered into a cooperative arrangement with Luxembourg’s audit regulator, the Commission de Surveillance du Secteur Financier of Luxembourg. This is in relation to the oversight of audit firms subject to the regulatory jurisdictions of both regulators. Please follow link for details: http://www.accountingtoday.com/news/audit-accounting/pcaob-strikes-deal-with-luxembourg-75850-1.html

September 16, 2015

Accounting Today

Global: Demands Increase on Financial Service Internal Auditors

“This latest report in the Common Body of Knowledge series provides a provocative and in-depth look at modern financial services internal auditing,” said Institute of Internal Auditors global chairman Larry Harrington in a statement. “Its analysis provides real insight into some of the most vexing challenges the profession will face as it meets growing demands for services.” This is concerning the financial service industry as pressures for internal auditors are growing quickly around the world. The report examined the challenges facing the profession, identified regulatory requirements, and technology risks or threats involved. Please follow link for details: http://www.accountingtoday.com/news/audit-accounting/demands-increase-on-financial-service-internal-auditors-75803-1.html

September 3, 2015

Computer Business Review

Top 5 IT Security Audit Questions

The CBR Online recently featured in their Cybersecurity/Business segment, the most common audit compliance questions asked by external IT auditors to determine whether a company is able to safeguard its most valuable assets.

They are, as follows:

1. Do you have a documented security policy?
2. Are access privileges in your organisation granted adequately?
3. What methods do you use to protect your data?
4. Do you have a disaster recovery plan?
5. Are your employees familiar with existing security procedures and policies?

Please follow link for details: http://www.cbronline.com/news/cybersecurity/business/top-5-it-security-audit-questions-4661821

Audit Firm: Message from Financial Reporting Council to the Big 4

The Financial Reporting Council is the UK’s independent regulator responsible for promoting high quality corporate governance. It recently issued Audit Quality Inspection Report for the year 2014/15.

The review of the firm’s policies and procedures supporting audit quality is undertaken by the Audit Quality Review team of the Financial Reporting Council (“the FRC”) and it covered aspects of the following areas: 

• Tone at the top and internal communications
• Transparency report
• Independence and ethics
• Performance evaluation and other human resource matters
• Audit methodology, training and guidance
• Client risk assessment and acceptance / continuance
• Consultation and review
• Audit quality monitoring
• Other firm-wide matters

 Some of the key messages given by the FRC to the Big 4 audit firms are as follows: 

• Improve the testing of management reports and other system generated information to obtain assurance on its reliability for audit purposes.
• Improve the testing of controls.
• Ensure that audit planning discussions are held with Audit Committees on a more timely basis to enable their input to be reflected appropriately in the audit plan.
• Ensure audit teams pay more attention to the nature and complexity of entities when determining the scope and extent of group and component audit procedures.
• Improve the audit approach in relation to the testing of journals including the selection of journals based on the characteristics of fraud risk
• Ensure that, when using the firm’s valuation and other specialists, audit teams obtain sufficient appropriate audit evidence to corroborate their conclusions.
• Take action to ensure that partners are notified promptly of new audited entities and dispose of any financial interests held in them on a timely basis.
• Ensure that the firm’s audit reports accurately describe the audit procedures performed to address the identified risks.

Additional Thoughts

The key messages given by the FRC to the audit firms can be used as guidelines by the firms to improve the quality of their audits. Firms should develop more stringent internal quality control review mechanisms to improve audit quality and deliver services to the complete satisfaction of all the stakeholders.