Contents
Introduction
Building on our previous guide, this section delves into more specialized areas of accounting interviews, including complex technical scenarios, industry-specific challenges, and emerging issues in the profession. These questions often appear in second or final round interviews where firms test deeper expertise and specialized knowledge.
Advanced Technical Questions
1. “How would you account for a business combination under ASC 805, and what are the key considerations in purchase price allocation?”
This complex question tests your understanding of M&A accounting. Structure your response:
“I would approach this methodically, explaining the key steps and considerations:
First, determine if the transaction qualifies as a business combination by evaluating whether the acquired assets constitute a business under ASC 805. This involves assessing if the acquired set includes inputs and substantive processes that together significantly contribute to the ability to create outputs.
For purchase price allocation, I would follow these steps:
- Determine the acquisition date fair value of consideration transferred:
- Cash payments
- Equity instruments issued
- Contingent consideration arrangements
- Pre-existing relationship settlements
- Identify and recognize acquired assets and assumed liabilities:
- Record at acquisition-date fair value
- Include identifiable intangible assets such as:
- Customer relationships
- Patents and technology
- Trademarks and trade names
- Non-compete agreements
- Measure goodwill or bargain purchase gain:
- Calculate as the difference between:
- Consideration transferred plus non-controlling interests
- Net identifiable assets acquired
- Perform initial goodwill impairment testing
- Consider specific complexities:
- In-process research and development
- Contingent liabilities
- Deferred tax implications
- Pre-existing relationships
- Prepare required disclosures:
- Pro forma financial information
- Qualitative description of goodwill factors
- Contingent consideration arrangements
- Measurement period adjustments”
2. “Explain the accounting treatment for a troubled debt restructuring, including the impact on financial statements.”
This tests understanding of complex debt scenarios:
“Let’s analyze this from both the debtor’s and creditor’s perspective:
Debtor’s Accounting:
- When terms are modified:
- Calculate the future cash flows under new terms
- Compare effective interest rate with original rate
- Record gain if carrying amount exceeds new payment stream
- Account for fees and costs as debt discount
- When debt is partially settled:
- Compare fair value of assets transferred with carrying amount
- Record gain or loss on settlement
- Adjust remaining debt carrying amount
- Consider tax implications
- Financial statement impacts:
- Balance Sheet: Reduced debt obligation
- Income Statement: Restructuring gain/loss
- Cash Flow: Financing activity changes
- Notes: Detailed restructuring disclosures
Creditor’s Accounting:
- Determine if restructuring qualifies as TDR:
- Evaluate debtor’s financial difficulties
- Assess concession granted
- Document modification terms
- Calculate impairment:
- Compare recorded investment to expected future cash flows
- Consider collateral value if applicable
- Record allowance for credit losses
- Monitor for subsequent changes
- Ongoing accounting:
- Interest income recognition method
- Cost recovery considerations
- Periodic collectibility assessments
- Documentation requirements”
3. “Walk me through the accounting for derivatives and hedge relationships under ASC 815.”
This tests understanding of complex financial instruments:
“I would explain the key concepts and requirements systematically:
- Initial Recognition and Measurement:
- Record derivatives at fair value
- Identify embedded derivatives
- Determine if bifurcation is required
- Document hedge relationships
- Hedge Accounting Requirements:
- Formal documentation at inception
- Hedge effectiveness assessment
- Regular effectiveness testing
- De-designation considerations
- Types of Hedge Relationships:
Fair Value Hedges:
- Hedge of exposure to changes in fair value
- Both hedge instrument and hedged item marked to market
- Ineffectiveness recorded in earnings
- Common examples:
- Fixed-rate debt hedged with interest rate swap
- Commodity inventory price risk
- Firm commitments
Cash Flow Hedges:
- Hedge of exposure to variability in cash flows
- Effective portion in OCI
- Reclassification timing considerations
- Examples:
- Variable rate debt
- Forecasted transactions
- Foreign currency cash flows
Net Investment Hedges:
- Hedge of foreign operation investment
- Translation adjustments in CTA
- Effectiveness assessment methods
- Documentation requirements
- Ongoing Accounting Requirements:
- Effectiveness testing methods
- Documentation updates
- Fair value measurements
- Balance sheet presentation
- Income statement impact
- Disclosure requirements”
Industry-Specific Technical Questions
4. “How would you audit cryptocurrency transactions and balances?”
This tests knowledge of emerging accounting challenges:
“I would outline a comprehensive audit approach:
- Understanding the Environment:
- Blockchain technology basics
- Types of cryptocurrencies held
- Wallet security measures
- Exchange relationships
- Regulatory requirements
- Risk Assessment:
- Private key controls
- Exchange platform risks
- Volatility considerations
- Regulatory compliance
- Cybersecurity measures
- Substantive Procedures:
Existence Testing:
- Verify wallet ownership
- Confirm exchange balances
- Review blockchain transactions
- Perform cryptographic proof of reserves
- Document transfer testing
Valuation Testing:
- Assess pricing sources
- Review foreign exchange impact
- Consider market depth
- Evaluate trading restrictions
- Document impairment considerations
Rights and Obligations:
- Review custody arrangements
- Confirm ownership rights
- Assess regulatory restrictions
- Evaluate smart contracts
- Document legal considerations
- Additional Considerations:
- Fork and airdrop accounting
- Mining activity treatment
- Staking rewards recognition
- Related party transactions
- Tax implications”
5. “What are the key considerations in revenue recognition for software companies under ASC 606?”
This tests industry-specific knowledge:
“Let me break down the key considerations:
- Identifying Performance Obligations:
Software Licenses:
- Term vs. perpetual licenses
- On-premise vs. cloud-based
- Usage-based rights
- Updates and upgrades
- Support services
Professional Services:
- Implementation services
- Customization work
- Training services
- Consulting arrangements
- Integration services
- Determining Transaction Price:
Variable Consideration:
- Usage-based fees
- Performance bonuses
- Service level credits
- Volume discounts
- Renewal options
Allocation Methods:
- Standalone selling prices
- Residual approach considerations
- Observable price adjustments
- Cost plus margin approach
- Market assessment method
- Timing of Revenue Recognition:
License Revenue:
- Point in time vs. over time
- Access vs. use rights
- Hosting considerations
- Implementation dependencies
- Acceptance criteria
Service Revenue:
- Input vs. output methods
- Milestone considerations
- Time-based recognition
- Performance measurement
- Customer acceptance terms
- Contract Modifications:
Scope Changes:
- Additional features
- Service expansion
- Term extensions
- Price concessions
- Renewal options
Accounting Treatment:
- Separate contract assessment
- Prospective treatment
- Cumulative catch-up
- Modification accounting
- Documentation requirements”
Complex Analytical Questions
6. “A client’s internal control system shows unusual patterns in after-hours transactions. How would you investigate potential fraud?”
This tests forensic accounting skills:
“I would approach this investigation systematically:
- Initial Data Analysis:
Transaction Patterns:
- Time and date distribution
- User access patterns
- Authorization levels
- Amount clustering
- Frequency analysis
System Access Review:
- Login credentials
- Location data
- System modifications
- Override patterns
- Audit trail completeness
- Risk Assessment:
High-Risk Areas:
- Cash handling processes
- Inventory movements
- Journal entries
- System access controls
- Authorization matrices
Red Flags:
- Split transactions
- Round number amounts
- Deleted audit trails
- Backdated entries
- Unusual approvers
- Investigation Procedures:
Document Review:
- Authorization forms
- Supporting documentation
- Email communications
- System logs
- Exception reports
Interview Strategy:
- Key personnel identification
- Question preparation
- Documentation protocols
- Legal considerations
- Confidentiality measures
- Evidence Collection:
Digital Evidence:
- System logs preservation
- Email archive review
- Database snapshots
- Access records
- Backup data analysis
Physical Evidence:
- Document retention
- Chain of custody
- Storage security
- Access restrictions
- Documentation standards”
Strategic Business Questions
7. “How would you advise a client considering transitioning from private to public company status?”
This tests business advisory skills:
“I would structure my response around key considerations:
- Readiness Assessment:
Financial Systems:
- Internal control documentation
- SOX compliance readiness
- Reporting capabilities
- System scalability
- Documentation standards
Organizational Structure:
- Board composition
- Committee requirements
- Management expertise
- Staffing needs
- Governance framework
- Implementation Planning:
Timeline Development:
- Key milestones identification
- Resource allocation
- Critical path analysis
- Contingency planning
- Progress monitoring
Cost Considerations:
- Initial public offering costs
- Ongoing compliance expenses
- System upgrades
- Staffing investments
- Professional fees
- Regulatory Requirements:
SEC Compliance:
- Registration requirements
- Ongoing reporting obligations
- Disclosure controls
- Internal control certification
- Corporate governance standards
Other Regulations:
- Exchange listing requirements
- Industry-specific regulations
- State law compliance
- International considerations
- Tax implications
- Operational Considerations:
Process Changes:
- Financial close procedures
- Investor relations function
- Communication protocols
- Reporting timelines
- Quality control measures
Risk Management:
- Insurance coverage
- Legal exposure
- Reputational risks
- Market volatility
- Stakeholder management”
Conclusion
These advanced interview questions require deep technical knowledge combined with strong analytical and communication skills. When preparing responses:
Understanding Fundamentals:
- Master technical accounting principles
- Develop industry expertise
- Stay current with regulations
- Build analytical capabilities
- Enhance communication skills
Response Strategy:
- Structure answers logically
- Provide specific examples
- Demonstrate business acumen
- Show professional judgment
- Consider stakeholder impact
Professional Development:
- Maintain technical knowledge
- Build industry expertise
- Develop advisory skills
- Enhance leadership capabilities
- Stay current with trends
Remember that these questions often lead to follow-up discussions, so be prepared to explore topics in greater depth and provide additional examples or scenarios as needed.
