Can you provide an example of a time when you identified a significant risk during an audit and how you addressed it?

Sample answer to the question

During a recent audit, I identified a significant risk related to internal controls within the client's accounts payable process. The risk was that there was a lack of segregation of duties, with one person responsible for both approving and processing payments. This increased the risk of fraud and errors. To address this, I conducted a thorough investigation, reviewing documentation and interviewing relevant individuals. I recommended implementing a segregation of duties by assigning different individuals to approve and process payments. This would provide a stronger control environment and mitigate the risk. The client agreed with the recommendation and implemented the necessary changes, which greatly improved their internal controls.

A more solid answer

During a recent audit for a manufacturing company, I identified a significant risk in their inventory management process. Through data analysis and physical observation, I found that the company was not properly tracking their raw material usage, leading to potential inaccuracies in inventory valuation and cost of goods sold. To address this, I collaborated with the client's inventory management team to develop a system for accurately tracking raw material usage. This involved implementing barcode scanning technology and updating inventory software to automatically capture usage data. By doing so, we were able to improve inventory accuracy, reduce financial reporting risks, and enhance cost control measures for the client.

Why this is a more solid answer:

The solid answer provided a more detailed example of the candidate's experience in identifying and addressing a significant risk during an audit. It included specific details about the industry (manufacturing), the risk identified (inventory management), and the actions taken to address the risk (collaboration, system implementation). It also demonstrated the candidate's analytical and problem-solving skills, knowledge of auditing techniques, and communication and interpersonal skills.

An exceptional answer

During an audit engagement at a financial services company, I discovered a significant risk related to the client's compliance with anti-money laundering (AML) regulations. Through detailed examination of the client's transaction records, I identified several instances where proper due diligence procedures were not followed, potentially exposing the company to regulatory penalties and reputational damage. To address this risk, I worked closely with the client's compliance team and designed a comprehensive AML training program for all employees. The program covered topics such as customer due diligence, suspicious activity reporting, and sanctions screening. Additionally, I helped the client establish enhanced monitoring mechanisms and reporting channels to ensure ongoing compliance with AML regulations. As a result, the client's AML framework was significantly strengthened, reducing the risk of non-compliance and protecting the company's reputation.

Why this is an exceptional answer:

The exceptional answer provided a highly detailed and complex example of a significant risk identified during an audit and the candidate's actions to address it. It demonstrated the candidate's in-depth knowledge and expertise in risk management and compliance, as well as their ability to design and implement effective solutions. The answer also showcased the candidate's exceptional communication and interpersonal skills, as they collaborated with the client's compliance team and developed a comprehensive training program. Overall, the answer highlighted the candidate's exceptional qualifications for the Audit Partner role.

How to prepare for this question

Familiarize yourself with auditing standards and techniques, especially in areas relevant to the job description, such as risk management and control processes.
Stay updated on current regulations and industry best practices, particularly in regards to compliance and financial reporting.
Develop strong analytical and problem-solving skills, as they are crucial in identifying and addressing risks during an audit.
Improve your communication and interpersonal skills, as they are essential for collaborating with clients and stakeholders during the audit process.

What interviewers are evaluating

Risk management
Analytical and problem-solving skills
Knowledge of auditing techniques
Communication and interpersonal skills