Accounting Firm Interview Questions Part 2

Table of Contents #

  1. Introduction
  2. Advanced Technical Questions
    • Business Combination Accounting under ASC 805
    • Troubled Debt Restructuring
    • Derivatives and Hedge Accounting under ASC 815
  3. Industry-Specific Technical Questions
    • Cryptocurrency Audit Procedures
    • Software Revenue Recognition under ASC 606
  4. Complex Analytical Questions
    • Fraud Investigation Procedures
  5. Strategic Business Questions
    • Private to Public Company Transition
  6. Conclusion

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:

  1. Determine the acquisition date fair value of consideration transferred:

    • Cash payments
    • Equity instruments issued
    • Contingent consideration arrangements
    • Pre-existing relationship settlements

  2. 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

  3. 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

  4. Consider specific complexities:

    • In-process research and development
    • Contingent liabilities
    • Deferred tax implications
    • Pre-existing relationships

  5. 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:

  1. 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

  2. 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

  3. 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:

  1. Determine if restructuring qualifies as TDR:

    • Evaluate debtor’s financial difficulties
    • Assess concession granted
    • Document modification terms

  2. Calculate impairment:

    • Compare recorded investment to expected future cash flows
    • Consider collateral value if applicable
    • Record allowance for credit losses
    • Monitor for subsequent changes

  3. 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:

  1. Initial Recognition and Measurement:

    • Record derivatives at fair value
    • Identify embedded derivatives
    • Determine if bifurcation is required
    • Document hedge relationships

  2. Hedge Accounting Requirements:

    • Formal documentation at inception
    • Hedge effectiveness assessment
    • Regular effectiveness testing
    • De-designation considerations

  3. 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
  1. 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:

  1. Understanding the Environment:

    • Blockchain technology basics
    • Types of cryptocurrencies held
    • Wallet security measures
    • Exchange relationships
    • Regulatory requirements

  2. Risk Assessment:

    • Private key controls
    • Exchange platform risks
    • Volatility considerations
    • Regulatory compliance
    • Cybersecurity measures

  3. 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
  1. 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:

  1. 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
  1. 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
  1. 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
  1. 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:

  1. 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
  1. 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
  1. 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
  1. 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:

  1. 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
  1. 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
  1. 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
  1. 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.

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