 Interview Tips –

21 Interview tips that helped me get into Big4s -

I have curated these based on my personal experiences:

1. Read the job description thoroughly and prepare your skill sets/answers according to what the
profile requires.

2. Jot down all your strengths and weaknesses (at least 2 each) before the interview.

3. With every skill, quote examples from the past where you used it and with every weakness,
quote examples where those weaknesses tried to overpower you but you worked/are working on
it.

4. Do not use ‘Honest/Diligent/Punctual’ as strengths because these are basic traits expected in
every individual.

5. Do not use weaknesses which seem to be negative for the organization/role.

6. Strengths should also be in line with what the profile requires in an individual.

7. Practice your answers to some common questions beforehand.

8. Think of your salary expectation beforehand. It should match with your experience.

9. Research well about the company and the interviewers beforehand.

10. Greet them before sitting down and after entering the room.

11. Think of the interview as a normal conversation. Try to keep yourself happy and do not bore
them.

12. Be handy with answers to what you’ve learnt and what challenges you’ve faced at every stage
of life (internships, college, etc.)

13. Jot down your hobbies (your favorite pass time). You should be handy with all the knowledge
about them.

14. Be prepared with a list of references. These could be people you’ve worked with in the past or
your college professors.

15. Practice a mock interview beforehand with your friends (always helps!)

16. Plan your attire, keep all the documents, cut your nails, carry a pen and notepad, and two
copies of your resume, a night before.

17. Arrive 10-15 minutes early.

18. If you go in for a handshake, make sure it is firm (not too tight and not too loose).

19. Do not speak negatively about anyone you’ve worked previously with.
 20. Ask about the next steps to the interviewer, and the follow-ups required.

21. Be confident & honest!

 Interview Questions
(Statutory Audit)

 Resume
 Financial Statement Schedule 3
 Ratios Analysis

Questions will be ticking around them only.

Apart from that here are some Questions which are raised to test knowledge of Audit
from the interviewee -

1. The concept of Materiality. How will you decide Materiality?

2. How overall materiality is different from Performance materiality?

3. Fundamental assumptions of Accounting

4. Going Concern (Case study based question)

5. Components of CFS

6. Analytical Procedures performed during the audit

7. Concept of Diluted EPS

8. Audit Opinion (Case study based question)

9. Subsequent Events (Both Ind as as well as SA)

10. Audit Sampling. How to determine Sample size?

11. Audit Assertions (List of assertions related to Financial Statement Line Items)

12. Audit Risk.

13. Audit Procedures for Certain Important Areas. (Most asked question for this role)

How did you performed below in your articleship?

 Audit cash and bank balance
 Audit of fixed asset.
 Audit of Revenue/Inventory.
 Audit of Trade Receivables
 Audit of Trade Payables
 Audit of Payroll expense
 Ind AS being the basis on which most of the Financials you will be auditing becomes
one of the important question for this role.
 Scope of Ind AS 115
 Five step Model of Ind AS 115
 Finance lease as per Ind AS 116 (Accounting of Finance lease)
 Exemptions in Lease
 Financial Asset/Financial Liability as per Ind AS 109 (How it is measured)
 Capitalization of interest on loan taken for construction of fixed asset
 Amortization Vs Impairment
 Indicators of Impairment
15. Recent Amendments in Financial Reporting including those of Schedule III

16. CARO 2020 major amendments.

17. Internal Controls Testing (with example) Including IFC reporting

18. Why stat audit?

19. Why this organization?

(Based on Vision and Mission of Company)

20. Comfortable working in deadline?

21. Have you been part of Limited Review of any company?

Bonus Tips
✨Read SAs 200 240 265 500 501 560 570 700 701 705 706 before interview

👉Highlight Audit learning you have gained during Articleship tenure

Dep?
Article ship experience
External confirmation
What is a Financial instrument n related Ind AS?
What is Going Concern and examples – case scenario can be asked.
Subsequent Events
Materiality
Cut Off Procedures
Ind AS 115
Ind AS 116
Verification of acc receivable, Equity
Internal control not effective than what will u do
How will you plan audit of new client
Materiality
If u can’t get confirmation from the debtor what alternative procedure will u perform
What if the internal auditor confirms that controls not that effective then how will
you plan an audit.
Fixed Asset verification
 Q- Test of details and substantive procedures

Ans- The substantive procedures (tests of details and substantive analytical procedures) should be
designed during the planning phase to be responsive to the related risk assessment. The purpose of
tests of details is to obtain direct audit evidence to detect material misstatements or non-compliance
at the assertion level. Tests of details are mostly applied to selected individual [Link] auditor should
carry out tests of details as designed in the planning phase, unless the evaluation of the results of tests
of controls requires her/him to reconsider the nature, timing and/or extent of the tests of details.

When performing tests of details, the auditor may find that:

 A selected item is not appropriate for the application of the audit procedure: in this case, the
audit procedure may be performed on a replacement item. For example, a voided cheque may
be selected when testing for evidence of payment authorisation. If the auditor is satisfied that
the cheque had been properly voided such that it does not constitute an error, an
appropriately chosen replacement is examined.
 (s)he is unable to apply the designed audit procedures to a selected item because, for instance,
documentation relating to that item has been lost. If suitable alternative audit procedures
cannot be performed on that item, the auditor ordinarily considers that item to be in error.
(S)he also considers whether the reasons for the inability to apply appropriate audit
procedures have implications for the assessed inherent or control risk or for reliance on
management representations.

Q- Types of Sampling

Ans-

Probability Sampling

Probability sampling means that every member of the population has a chance of being selected. It is
mainly used in quantitative research.

1. Simple random sampling

In a simple random sample, every member of the population has an equal chance of being selected.
Your sampling frame should include the whole population.

To conduct this type of sampling, you can use tools like random number generators or other techniques
that are based entirely on chance.
Example: Simple random sampling - You want to select a simple random sample of 100 employees of Company
X. You assign a number to every employee in the company database from 1 to 1000, and use a random number
generator to select 100 numbers.

2. Systematic sampling
Systematic sampling is similar to simple random sampling, but it is usually slightly easier to conduct.
Every member of the population is listed with a number, but instead of randomly generating numbers,
individuals are chosen at regular intervals.

Example: Systematic sampling- All employees of the company are listed in alphabetical order. From
the first 10 numbers, you randomly select a starting point: number 6. From number 6 onwards, every
10th person on the list is selected (6, 16, 26, 36, and so on), and you end up with a sample of 100
people.

3. Stratified sampling
Stratified sampling involves dividing the population into subpopulations that may differ in important
ways. It allows you draw more precise conclusions by ensuring that every subgroup is properly
represented in the sample.

To use this sampling method, you divide the population into subgroups (called strata) based on the
relevant characteristic (e.g. gender, age range, income bracket, job role).

Based on the overall proportions of the population, you calculate how many people should be sampled
from each subgroup. Then you use random or systematic sampling to select a sample from each
subgroup.

Example: Stratified sampling- The company has 800 female employees and 200 male employees. You
want to ensure that the sample reflects the gender balance of the company, so you sort the population
into two strata based on gender. Then you use random sampling on each group, selecting 80 women
and 20 men, which gives you a representative sample of 100 people.

4. Cluster sampling
Cluster sampling also involves dividing the population into subgroups, but each subgroup should have
similar characteristics to the whole sample. Instead of sampling individuals from each subgroup, you
randomly select entire subgroups.

If it is practically possible, you might include every individual from each sampled cluster. If the clusters
themselves are large, you can also sample individuals from within each cluster using one of the
techniques above. This is called multistage sampling.

This method is good for dealing with large and dispersed populations, but there is more risk of error in
the sample, as there could be substantial differences between clusters. It’s difficult to guarantee that
the sampled clusters are really representative of the whole population.

Example: Cluster sampling- The company has offices in 10 cities across the country (all with roughly the
same number of employees in similar roles). You don’t have the capacity to travel to every office to
collect your data, so you use random sampling to select 3 offices – these are your clusters.
Non Probability sampling

In a non-probability sample, individuals are selected based on non-random criteria, and not every
individual has a chance of being included.

This type of sample is easier and cheaper to access, but it has a higher risk of sampling bias.

1. Convenience sampling
A convenience sample simply includes the individuals who happen to be most accessible to the
researcher.

This is an easy and inexpensive way to gather initial data, but there is no way to tell if the sample is
representative of the population, so it can’t produce generalizable results.

Example: Convenience sampling- You are researching opinions about student support services in your
university, so after each of your classes, you ask your fellow students to complete a survey on the topic.
This is a convenient way to gather data, but as you only surveyed students taking the same classes as
you at the same level, the sample is not representative of all the students at your university.

2. Voluntary response sampling

Similar to a convenience sample, a voluntary response sample is mainly based on ease of access.
Instead of the researcher choosing participants and directly contacting them, people volunteer
themselves (e.g. by responding to a public online survey).

Voluntary response samples are always at least somewhat biased, as some people will inherently
be more likely to volunteer than others.

Example: Voluntary response sampling- You send out the survey to all students at your university and a
lot of students decide to complete it. This can certainly give you some insight into the topic, but the
people who responded are more likely to be those who have strong opinions about the student
support services, so you can’t be sure that their opinions are representative of all students.

3. Purposive sampling
This type of sampling, also known as judgement sampling, involves the researcher using their expertise
to select a sample that is most useful to the purposes of the research.

It is often used in qualitative research, where the researcher wants to gain detailed knowledge about a
specific phenomenon rather than make statistical inferences, or where the population is very small
and specific. An effective purposive sample must have clear criteria and rationale for inclusion.

Example: Purposive sampling- You want to know more about the opinions and experiences of disabled
students at your university, so you purposefully select a number of students with different support
needs in order to gather a varied range of data on their experiences with student services.

4. Snowball sampling
If the population is hard to access, snowball sampling can be used to recruit participants via other
participants. The number of people you have access to “snowballs” as you get in contact with more
people.

Example: Snowball sampling- You are researching experiences of homelessness in your city. Since there
is no list of all homeless people in the city, probability sampling isn’t possible. You meet one person
who agrees to participate in the research, and she puts you in contact with other homeless people that
she knows in the area.

Q- Difference between Stat Audit and Internal Audit

Ans- The following points will provide clarity about the ‘internal audit vs statutory audit’ comparison –

 In terms of its appointment, an internal auditor is usually appointed by the internal

parties among the top management of the company. On the other hand, to find greater
accuracy, shareholders or AGM (Annual General Meeting) select a statutory auditor.

 The most important yet basic difference between both audits is the legal need. Internal audit
is done to get an additional layer of protection and a reality-check of the company’s practices.
Against it, a statutory audit is compulsory to perform. The government lays down various laws
for the non-performance of statutory audits.

 Usually, an internal audit is conducted anytime without any prior rigid announcements,
whereas a statutory audit can only be initiated after the making of final accounts. It is not a
regular activity of the management.

 The government has not laid any eligibility norms or qualifications requirements for a person
to qualify for an internal auditor post. Contrary to it, there are various qualifications and
requirements to clear before becoming a statutory auditor. Therefore, the latter is more
credible than the internal auditor.

 The major difference lies in the scope of activities that both the auditors are involved in. An
internal audit performs various duties such as analysis of accounts and different activities of the
organization. On the other hand, a statutory audit is only concerned with inspection, spotting
errors, and checking the financial reports, accounts, and related documents. This implies that
the scope of internal audit is broader than the statutory audit.

 A statutory auditor works more independently than the internal auditor, as the latter is
selected by the management itself.

 There is more flexibility in removing an internal auditor than the statutory auditor. The former
can be fired at any time by the management, but a statutory auditor can be discharged from
the position only by the AGM.

 The shareholders decide the pay and remuneration of the statutory auditor, whereas the fees
or pay is fixed through the management’s decision.
  It is not compulsory to prepare and present a detailed report after the auditing process in an
internal audit. Contrary to it, it is important as well as mandatory in statutory audit to
present the report consisting of the audit details

Q- Difference between substantive analytical prcodeure and test of controls

Ans-

1. When we talk about control tests, we refer to audit procedures that verify the
operating effectiveness of controls related to preventing or detecting material
misstatements.

On the other hand, we have already said that substantive testing is a phase in the audit process
to determine the fairness of financial information. For example, the auditor gathers samples
and evidence to ascertain the extent of misstatements in the client’s account balances in this
phase.

2. In terms of objectives, control testing evaluates the performance of the internal control
system that monitors the accounting system. At the same time, the substantive testing audit
approach provides sufficient appropriate audit evidence on the completeness, accuracy, and
validity of the actual data produced by the accounting system.

3. Control testing is completed before substantive testing; and results from control testing will
influence the scope of substantive testing. If an auditor determines that an organization’s
controls are weak, he or she may recommend more thorough substantive testing. In this
sense, we can say that the procedures are different, but definitely related.

While each procedure has its own purpose in audits, both audit techniques are essential for the risk
management of internal controls of a business.

Test of Control

 Component: Test of controls is the testing tool for assessing control risk.
 Step: It is the second step in audit testing.
 Types: Test of controls can be classified into two types: Concurrent test and planned tests of control.
 GAAS: It has no specific formulation of GAAS.
 Determination: It determines effectiveness and efficiency of internal control.
 Basis: Test of control is the police end procedures.
 Timing: Tests of control are done in interim date.

Substantive Test
 Component: the Substantive test is the control mechanism of controlling detection risk.
 Step: It is the third step in audit testing.
 Types: Substantive test can be classified into three types.
 GAAS: It is done in accordance with die GAAS.
 Determination: It determines fairness of financial statements.
 Basis: It is done on the basis of monetary error.
 Timing: the Substantive test is done on the balance sheet date.

Q- 5 step Revenue Model

Ans-

Step 1: Identify the contract with the customer- The contract can be written, verbal, or implied and is
based on your company’s ordinary practices. The contract should outline payment terms and any other
rights of your business and the customer related to the goods or services that will be transferred.

Step 2: Identify the performance obligations in the contract- Once you’ve established the contract,
identify each promise you make to the customer – aka the performance obligation. A performance
obligation is a distinct good or service, or a series of distinct goods or services, that are substantially the
same and have the same pattern of transfer to the customer.

Step 3: Determine the transaction price- The contract may include fixed consideration, variable
consideration, or both types. If it includes variable consideration, estimate the amount of variable
consideration you’re entitled to. You can use the expected value method or most likely amount method
to calculate this amount.

Pay attention to the timing of the payment and how much time will pass between the transfer of
promised goods and services and when the customer pays to determine if there is a financing
component. If a significant amount of time passes, adjust the transaction price for the time value of
money.

Step 4: Allocate the transaction price to the performance obligations in the contract- Assign a price to
each performance obligation in the contract. Base the prices on relative standalone selling prices like the
sale of similar goods or services, a contractually stated price, or a list price.

If you can’t directly observe a standalone selling price, you can estimate the price using one of these
methods: adjusted market assessment, expected cost plus margin, or residual.

Step 5: Recognize revenue when, or as, the entity satisfies a performance obligation- You’ll
either recognize revenue over time or at a point in time. If recognizing revenue over time, apply
a single method of measuring progress for each performance obligation. Apply this method to
any similar performance obligations and remeasure the progress at the end of each reporting
period.
You can recognize revenue at a point in time if the performance obligation doesn’t meet the criteria to
recognize revenue over time. The performance obligation is met at the most practical point in time
when the customer gains control of the asset.

Q- Emphasis of matter paragraph

Ans- Emphasis of matter is a type of paragraph in an auditors' report on financial statements. Such a
paragraph is added to indicate a matter which is disclosed appropriately in the notes forming part of
the financial statements that the auditor considers is fundamental to the users' understanding of the
financial statements.[1]
An emphasis of matter paragraph indicates that the auditor's opinion is not modified with respect to the
matter emphasized.

A paragraph included in the auditor’s report that refers to a matter appropriately presented or disclosed
in the financial statements that, in the auditor’s judgment, is of such importance that it is fundamental
to users’ understanding of the financial statements.

From the above definition we can understand that:

 EMP is basically a reference to a matter or a disclosure in the financial statements

 by including an additional paragraph auditor has highlighted it so that it is considered by
the user of financial statements
 EMP will always be about the matters already presented/disclosed appropriately in the
financial statements
 In the auditor’s judgment the matter or disclosure so highlighted is so important that if it is
missed then users may be mislead or may end up not understanding the financial
statements accurately.

Emphasis of Matter paragraph may be included in auditor’s report when:

 Auditor believes that there is a need to draw user’s attention to significant

uncertainty surrounding accounting estimates
 In case new or amended audit report has been issued after the discovery of subsequent events.
 In case material uncertainty exists surrounding the use of going concern assumption but
the same has been disclosed to the satisfaction of the auditor in the financial statements.
 In case financial statements have been prepared under two financial reporting frameworks
then auditor shall include Emphasis of Matter paragraph pointing to the disclosure in respect of
extent of compliance of framework
 In case of early application of accounting standard that has pervasive effect on financial
statements i.e. new accounting standard has been followed and applied before its
effective date.
 In case auditor discovered that prior period financial statements contain material
misstatements and also amended audit report has not been issued but the corresponding
figures have been restated and appropriate disclosures have been made in the current
period financial statements.
 In case financial statements are prepared under special purpose framework
  An entity is facing major catastrophe and its effects are expected to propagate to future periods
and it is and will significantly affect the financial position of entity.

Remember
It is up to auditor to decide whether Emphasis of Matter paragraph is necessary in the situation or not
by using professional judgment. Also students are advised to consult relevant standards to understand
the situation and circumstances in detail in which Emphasis of Matter paragraph is used and related
provisions.

Q- Fixed Asset Audit

Ans –

 Addition and Disposal of Fixed Assets: This to make sure each addition and disposal is
processed, reviewed, authorized, and approved by different persons (segregation of duties) in
the entity following the authorization matrix stated in the entity’s policy. Higher value items
may sometimes require approval by the board of directors before they can be acquired.

 Fixed Assets Tagging: This procedure is to ensure each Fixed Asset is uniquely tagged so that it
can be easily matched to the Fixed Asset register. It allows the entity to keep track of all its
assets especially when there are additions and disposals. It can also help avoid
misappropriation of Fixed Assets for personal gain.
 Segregation of Duties: Other than having segregation of duties in terms of purchase and
disposal, it is also vital that the person taking care of the assets being different from the person
purchasing them. This will discourage the employee from inappropriately purchasing the
assets for their own use and reduce the risk of theft.

 Impairment Policy: Having this control in place allows the entity to properly identify assets
that need to be impaired on a timely basis. Without this in place could lead to an
overstatement of assets especially when there is a downturn in the entity’s business

Substantive Analytical Procedures include the consideration of whether there are any major changes in
the entity’s operations, e.g. discontinuation of product lines. Such changes are indications that the Fixed
Assets should be classified as assets held for sale or be retired. If the Fixed Assets need to be retired, we
need to determine if they have been reflected in the level of disposals. Test of details is normally
performed for this purpose.

We could also review insurance coverage if the entity insures its Fixed Assets. A significant drop in
insurance coverage may suggest that some assets have been disposed of. An uninsured asset could also
indicate that the asset has been disposed off.

Q- Audit opinions

Ans-
Unqualified Opinion or Unmodified Opinion

An unqualified opinion is expressed by the Auditor when he/she concludes that the financial statements
supply a true and fair view of the company’s financial standing in accordance with the financial reporting
framework deployed in the preparation and presentation of the financial statements. Further, an
unqualified opinion also indicates that:

 All accounting principles have been adopted properly, and the financial statement has been
prepared using the generally accepted accounting principles;
 The financial statements comply with relevant legal regulations and requirements;
 There is adequate disclosure of all material matters relevant to the proper presentation of the
financial information.

Qualified Opinion or Modified Opinion

An audit report is said to be a qualified report or a modified report if the Auditors report is modified to
add emphasis or highlight a matter affecting the financial statements. One of the main reason for
qualifying an audit report or modifying an audit report is if there are concerns to the auditor regarding a
going concern problem and the going concern question is not resolved, and relevant disclosures have
not been made in the financial statements.

Disclaimer of Opinion

If there is a limitation on the scope of the auditor’s work or if there is a disagreement with management
regarding the usability of the accounting policies selected, the method of their utilisation or the
adequacy of financial statement disclosure, then an adverse or disclaimer of opinion is issued.
Whenever an auditor issues an audit opinion that is qualified or adverse or a disclaimer of opinion, a
clear description of all the reasons is included in the audit report. A disclaimer of opinion is expressed by
an Auditor when the possible effect of limitation on the scope of the audit is so material and pervasive
that the auditor has not been able to obtain sufficient appropriate audit evidence.

Adverse Opinion

An adverse opinion is expressed when the possible effect of a disagreement with management is
material and pervasive to the financial statements. Hence, the auditor concludes that the qualification
of the audit report is not adequate to disclose the misleading nature of the financial statements. In case
an adverse opinion is issued, the board of directors of the company are legally bound to submit an
explanation to the members of the company. The explanation should inform the members the reason
for the adverse opinion.

Q- Cash and bank balance audit

Ans- One may adopt the following checklist for Audit of Cash and Bank Balances:

1. Has the system of internal control relating to cash and bank balances been evaluated?
2. Whether the following aspects of internal control relating to cash and bank balances reviewed?
a) Segregation of duties relating to authorization of transactions
 b) Handling of cash/issuance of cheques and writing of books of account
c) Rotation of the duties periodically
d) Proper authorization of cash and banking transactions
e) Daily recording of cash transactions
f) Safeguards such as the restrictive crossing of cheques, use of pre-printed, pre-numbered forms
g) Periodic reconciliation of bank balances
h) Reconciliation of cash-on-hand with book balance on a daily basis or at other appropriate
intervals, including surprise checks by higher authorities
i) Safe custody of cash, chequebooks, receipt books etc.
j) Cash/fidelity insurance
3. Whether the cash and bank balance been appropriately verified?

4. Whether the cash balance shown in the financial statements reconciles with the results of the
physical verification after taking into account the cash receipts and cash payments between the date
of the physical verification and the date of the balance sheet?

Q- How to audit revenue

Ans - A revenue audit is a two-part process that examines the figures and information on a company's
tax returns against those found in its business records. In general, auditors check the returns of
income over a one-year period. However, they may review your records for prior years too in case
they notice any discrepancies. This process has the role to monitor and ensure tax compliance. It also
helps identify signs of tax evasion as well as additional liabilities. The auditors will also collect interest,
tax or penalties where applicable. The two main stages of a revenue audit include testing the revenue
accounts on your income statements followed by an examination of your accounts receivable on the
balance sheet. The auditors may also check for revenue recognition issues, such as side agreements
and channel stuffing. Companies often engage in practices to artificially inflate their revenue. Auditors
often use substantive procedures for revenue assessment to detect fraud or financial information
misstatement. Their goal is to determine whether or not your account balances and transactions are
valid, accurate and complete.

Tests of controls for the revenue cycle include:

 Who accepts and approves credit sales

 The separation of duties for filling out, shipping, and recording sales orders
 Appropriate documentation for collecting and depositing cash and recording the receipts
 The appropriate authority and documentation to grant discounts for early or cash payments and
sales returns
 Management authorization to determine that an account is uncollectible and should be written off to
bad debts.

Q- Deferred revenue accounting and Deferred expense accounting

Ans- Since deferred revenues are not considered revenue until they are earned, they are not reported
on the income statement. Instead they are reported on the balance sheet as a liability. As the income
is earned, the liability is decreased and recognized as income.
Like deferred revenues, deferred expenses are not reported on the income statement. Instead, they are
recorded as an asset on the balance sheet until the expenses are incurred. As the expenses are incurred
the asset is decreased and the expense is recorded on the income statement.

Under the cash basis of accounting, deferred revenue and expenses are not recorded because income
and expenses are recorded as the cash comes in or goes out.

Q- Leases

Ans- Finance Lease

A lease in which all risks and rewards are transferred to the owner of assets. The title may or may not
eventually be transferred.
Examples of Finance Lease are:
1. Lease in which Assets is transferred to lessee at the end of lease term
2. Lease term in which lessee has the option to purchase the assets form lessor at the price which
is lower than fair price on the date when option become exercisable.
3. Lease term Covers complete economic life of the asset even if title is not transferred
4. Lease term in which present value of the minimum lease payments is equal to or substantially
covers the fair value of the leased asset
5. Leased asset is of a specialized nature. Ex Ambulance (the lessee can use it without
major modifications being made)

Operating Lease

Any other lease other than finance lease is considered as an Operating Lease.

Accounting in the books of Lessee in case of Finance Lease

1. At the inception of lease, lessee will recognize the lease as assets or liability at an amount equal to
the fair value of leased assets
2. Apportion the lease payments into finance charge and reduction in outstanding liability
3. Allocate finance charge to the periods during lease term 4. Pass journal entry for depreciation

Disclosure in case of Finance Lease

1. Assets acquired on Lease should be shown separately

2. For each leased assets, show net carrying amount at the balance sheet date
3. Provide reconciliation between Minimum Lease Payment at balance sheet date and their
present value
4. Disclose total of minimum lease payment at balance sheet date and their present value for:

 Not later than one year

 Later than one year but not later than five year
 Later than five years
5. Future minimum sublease payment expected to receive at balance sheet date
6. General description of lessee significant leasing arrangements

Accounting in the books of Lessee in case of Operating Lease

Lease payment is recognized as an expense in the profit and loss account.

Disclosure in case of Operating Lease

1. Future lease payment for the following period

 Not later than one year

 Later than one year but not later than five years
 Later than five years

2. Total Expected future lease payment

3. Lease payment recognized in the statement of Profit and Loss for the period
4. General Description of Lessee significant leasing arrangements

Accounting in the books of Lessor in case of Finance Lease

1. Lessor to record assets in the books of account at an amount equal to net investment in Lease
2. Record finance income based on pattern reflecting constant periodic rate of return
3. Estimate unguaranteed residual value used in computing lessor gross investment in lease
4. If there is any reduction in estimated unguaranteed residual value then revise the income allocation
over the remaining lease term. Reduction in respect to the amountto amount already recognized to
be recognized immediately. Upward adjustment to be ignored
5. Initial direct cost associated with the lease to be recognized immediately in the profit and loss
account or can be spread over the lease term

Disclosure in case of Finance Lease

1. Provide reconciliation between gross investment in lease at balance sheet date and present value
of minimum lease payment. Also disclose the same as

 Not later than one year

 Later than one year, but not later than five year
 Later than five year

2. Unearned finance income

3. Unguaranteed residual value
4. Accumulated provision for uncollectible minimum lease payment receivable
5. Contingent rent recognized in statement of profit and loss account
6. General description of leasing arrangement
7. Accounting policy adopted for in respect of initial direct cost
Accounting in the books of Lessor in case of Operating Lease

1. Lessor should record assets in balance sheet under fixed assets

2. Lease income to recognize in statement of profit and loss account
3. Cost incurred including depreciation to be recognized in statement of profit and loss account
4. Check for impairment and provide for in book as per GAAP

Disclosure in case of Operating Lease

1. For each class of assets accumulated depreciation, accumulated impairment and carrying
amount at the balance sheet date.
2. Depreciation recognized in the statement of profit and loss account.
3. Impairment losses recognized in the statement of profit and loss account.
4. Impairment loss reversed in the statement of profit and loss account.
5. Future minimum lease payment under for each of the following periods:

 Not later than one year

 Later than one year but not later than five year
 Later than five years

6. Total contingent recognized in the statement of profit and loss account.

7. General description of leasing arrangement

Sale and Leaseback Transaction

1. If sale and leaseback transaction results in finance lease: Any excess or deficiency over
carrying amount should be deferred and amortized over the lease term in proportion to
depreciation of the leased assets.
2. If sale and leaseback transaction results in operating lease: Any excess or deficiency over
carrying amount should be recorded immediately in book of account:
a) If the sale price is below fair value, the loss is compensated by future lease payments at below
market price, it should be deferred and amortized in proportion to the lease payments over the
period for which the asset is expected to be used
b) If the sale price is above the fair value, the excess over fair value should be deferred and
amortized over the period for which the asset is expected to be used