External Auditor Scenario-Based Questions

1. You are assigned to audit a company known for its aggressive revenue recognition practices. During your audit, you discover discrepancies in their revenue reporting. How would you approach this situation with the client while ensuring compliance and maintaining a professional relationship?

2. While conducting an external audit for a client in the healthcare sector, you encounter significant resistance from the client's management in providing necessary documentation. What steps would you take to address this challenge and complete the audit effectively?

3. You discover that an employee at your client’s organization has been inflating expenses in their reimbursement claims. How do you handle this discovery, balancing ethical considerations, client confidentiality, and your role as an external auditor?

4. During your audit, you identify that the client has not adequately disclosed related party transactions. What actions would you take to address this issue, and how would you communicate your findings to both the client and the audit committee?

5. A major client faces allegations of fraud shortly after your audit engagement. You are called in to provide your assessment of financial controls and procedures. What specific steps would you take to evaluate the situation, and how would you report your findings?

6. You are auditing a multinational company and find that their foreign subsidiaries are not compliant with local accounting regulations. What would be your approach to assess the potential impact on the overall financial statements and manage the client relationship?

7. Midway through your audit, a key member of the client's finance team resigns unexpectedly, leaving you with incomplete information. How do you adapt your audit plan, and what measures do you take to ensure your audit's integrity and thoroughness?

8. You notice a significant variance in inventory levels during an external audit of a retail client, which raises questions about the client's inventory management practices. How would you investigate this issue, and how would you communicate your concerns to the client?

9. During the audit, you find that a client has implemented a new accounting software system that seems to have inconsistencies in data migration. What steps would you take to assess the reliability of the financial information resulting from this migration?

10. Your external audit report reveals significant deficiencies in the internal controls of a service sector client. How do you tailor your recommendations to ensure they are actionable, and how do you present these findings to the board without causing panic?