Preview Questions External Auditor | Role Specific Skill

Question 1: How should an external auditor approach investigating a sudden increase in loan write-offs at a BFSI institution?

Which action should you take?

Choose only one option

Examine the impact of external economic factors

Analyze the adequacy of loan loss provisions

Review the institution's loan approval processes and borrower profiles

Compare the increase in loan write-offs with industry trends

Question 2: What analytical procedure should an external auditor use to assess the valuation of a bank's financial instruments, particularly during periods of market volatility?

Which action should you take?

Choose only one option

An analysis of the institution's liquidity ratios

A review of the pricing models and assumptions used for valuation

A comparison of the bank's portfolio with market benchmarks

A detailed review of the bank's risk-weighted assets

Question 3: How can an auditor assess the adequacy of a bank's credit risk management practices in relation to its loan portfolio?

Which action should you take?

Choose only one option

Test credit risk only for large loans while ignoring smaller ones

Review the processes used for loan approval, monitoring, and provisioning

Compare credit risk assessments to other banks without considering specific portfolios

Focus only on the loan default rates and ignore underlying risk management processes

Question 4: What is the most critical step for an external auditor when investigating the adequacy of a bank's reserves for future contingencies?

Which action should you take?

Choose only one option

Analyzing the bank's risk management framework and ensuring reserves align with industry standards

Accepting management's judgment on reserves without independent verification

Reviewing the reserves in isolation, without considering overall risk exposure

Focusing only on the reserves' impact on profit and loss statements

Question 5: 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 6: When conducting an external audit of a bank, how can an auditor ensure the accuracy of the bank's loan loss reserves during the audit?

Which action should you take?

Choose only one option

Use the bank's risk assessment reports without cross-checking with historical data

Examine reserves in isolation without considering changes in loan portfolio quality

Compare reserves with historical loss experience and perform sensitivity analysis

Focus solely on the quantity of loan loss reserves without reviewing underlying assumptions