[Interview - Final - Tips] Technical question: Bộ câu hỏi phỏng vấn cá nhân

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1. Now let’s say a company sell a car for revenue of $70,000 at a cost of $50,000. What happen to 3 statements: balance sheet, income statement and cash flow statement?

1.1 Answering method:

• Firstly, respondents have to evaluate items of each statement affected by the adjustment:
  • Income statement: cogs, gross profit, revenue and operating income;
  • Cash flow statement: net change in cash;
  • Balance sheet: inventory, cash and shareholders’ equity.
• Then, they have to evaluate the increase and decrease of items, which is shown clearly in the example answer below.

1.2 Example:

• Income statement: revenue is up by $70,000 and cogs is up by $50,000 so gross profit is up by $20,000 and operating income is up by $20,000 as well. Assuming a 20% tax rate, net income is up by $16,000.
• Cash flow statement: net income at the top is up by $16,000 and inventory has decreased by $50,000 (since we just manufactured the inventory into real car), which is a net addition to cash flow – so cash flow from operations is up by $66,000 overall. These are the only changes on the cash flow statement, so net change in cash is up by $66,000.
• Balance sheet: cash is up by $66,000 and inventory is down by $50,000, so assets is up by $16,000 overall. On the other side, net income was up by $16,000 so shareholders’ equity is up by $16,000 and both sides balance.

2. Why is the income statement not affected by changes in inventory?

2.1 Answering method:

• Respondents have to show their understandability of inventory:
  • Definition: inventories are assets which are held for sale in the normal production and business period; in the on-going process of production and business; raw materials, materials, tools and instruments for use in the process of production and business or provision of services (according to vas 02);
• Additionally, it would be better if they could indicate that there is no impact of inventory on income statement. A clear explanation is shown below.

2.2 Example:

• In the case of inventory, the expense is only recorded when the goods associated with it are sold – so if it’s just sitting in a warehouse, it does not count as a cost of good sold or operating expense until the company manufactures it into a product and sells it. Subsequently, the income statement is not impacted by the change of inventory.

3. How many types of calculation method for the value of inventory? What is the difference between FIFO and LIFO?
3.1 Answering method:

• Respondents have to list four main calculation methods: the weighted average, the specific identification, FIFO and LIFO and their definitions:
  • The weighted average: the value of each kind of inventories shall be calculated according to the average value of each similar kind of goods at the beginning of the period and the value of each kind of inventories purchased or manufactured in the period;
  • The specific identification method: the specific identification method shall apply to enterprises having a few goods items or stable and identifiable goods items;
  • FIFO: the first-in, first-out method shall apply upon the assumption that the first inventories purchased or manufactured is the first inventories delivered, and the inventories left at the end of the period are those purchased or produced at a time close to the end of the period;
  • LIFO: the last-in first-out method shall apply upon the assumption that the most recently purchased or manufactured inventories are delivered first, and the inventories left at the end of the period are those which are purchased or produced earlier.
• For the second question, they need to illustrate the difference in calculating the value of inventory of these two methods:
  • FIFO: use the value of the oldest inventory addition of cogs;
  • LIFO: use the value of the most recent inventory addition of cogs.

3.2 Example:

• Let’s say your starting inventory balance is $100 (10 units valued at $10 each). You add 10 units each quarter for $12 each in q1, $15 each in q2, $17 each in q3, and $20 each in q4, so that the total is $120 in q1, $150 in q2, $170 in q3, and $200 in q4. You sell 40 of these units throughout the year for $30 each. In both LIFO and FIFO, you record 40 * $30 or $1,200 for the annual revenue.
• The difference is that in LIFO, you would use the 40 most recent inventory purchase values – $120 + $150 + $170 + $200 – for the cost of goods sold, whereas in FIFO you would use the 40 oldest inventory values – $100 + $120 + $150 + $170 – for cogs. As a result, the LIFO cogs would be $640 and FIFO cogs would be $540, so LIFO would also have lower pre-tax income and net income. The ending inventory value would be $100 higher under FIFO and $100 lower under FIFO.
• In general, if inventory is getting more expensive to purchase, LIFO will produce higher values for cogs and lower ending inventory values and vice versa if inventory is getting cheaper to purchase.

4. How many types of financial statement a company need to provide in its financial report? Which one do you choose to assess the company health?
4.1 Answering method:

• Initially, respondents have to list 4 statements: statement of financial position, income statement, cash flow statement and statement of changes in equity:
  • Balance sheet: presents the financial position of an entity at a given date. It is comprised of three main components: assets, liabilities and equity.
• Explain why cash flow statement is the most important one:
  • You would use the cash flow statement because it gives a true picture of how much cash the company is actually generating, independent of all the non-cash expenses you might have. And that’s the #1 thing you care about when analyzing the overall financial health of any business – its cash flow.

4.2 Example:

• Cash can come from both internal and external sources, and the statement of cash flow helps companies and investors separate and observe the differences and extent of the cash inflows and outflows. Internal, as opposed to external cash sources, provide a company with successful attributes and assurances that include:
• Preventing and monitoring company debt.
• Preventing unnecessary expenditures from interest, late payment penalties and debt costs.
• Ensuring timely investment and cash available for investment opportunities.
• Ensuring timely payment of expenses and debts.
• And most importantly – ensuring a level of regular business income without relying on outside investment or cash borrowing.
• Effectively managing and monitoring cash flows serves many purposes. The most significant reason is to provide owners and managers insight into the company’s cash position. This knowledge better equips management to make informed decisions about regular business operations, the need for further investment in the business, and capital from equity or debt partners. Cash management is something most businesses of all sizes struggle to perfect. While the cash flow statement is by no means the only method of monitoring cash flows, it is an integral part of the reporting statements and should not be overlooked by the financial statement users.

5. How long does it usually take for a company to collect its accounts receivable balance?
5.1 Answering method

• Respondents have to show their deep understandability about accounts receivable:
  • Definition: a current asset resulting from selling goods or services on credit (on account);
  • How long it would be taken: from 30 to 60 days.  

5.2 Example

• Generally, the accounts receivable days are in the 30 to 60 days range, though it’s higher for companies selling high-end items and it might be lower for smaller, lower transaction value companies.

6. What’s the difference between accounts receivable and deferred revenue?
6.1 Answering method

• Giving the definition of accounts receivable and deferred revenue:
  • Definition: accounts receivable is a current asset resulting from selling goods or services on credit (on account), whereas deferred revenue is not yet revenue. It is an amount that was received by a company in advance of earning it.
• Compare and contrast them to show the difference:
  • Difference: accounts receivable has not yet been collected in cash from customers, whereas deferred revenue has been.

6.2 Example

• Accounts receivable has not yet been collected in cash from customers, whereas deferred revenue has been. Accounts receivable represents how much revenue the company is waiting on, whereas deferred revenue represents how much it has already collected in cash but is waiting to record as revenue.

7. What is the difference between capital leases and operating leases?
7.1 Answering method

• Respondents have to show their understandability by giving the definition of capital leases and operating leases:
  • Operating leases are used for short-term leasing of equipment and property, and do not involve ownership of anything. Operating lease expenses show up as operating expenses on the income statement;
  • Capital leases are used for longer-term items and give the lessee ownership rights; they depreciate and incur interest payments, and are counted as debt.
• After that, compare and contrast these two kinds of leases;
• A lease is a capital lease if any one of the following 4 conditions is true:
  • If there’s a transfer of ownership at the end of the term;
  • If there’s an option to purchase the asset at a bargain price at the end of the term;
  • If the term of the lease is greater than 75% of the useful life of the asset;
  • If the present value of the lease payments is greater than 90% of the asset’s fair market value.

7.2 Example:

• To differentiate capital leases and operating leases, it would be appropriate to define both of them. Operating leases are used for short-term leasing of equipment and property, and do not involve ownership of anything. Operating lease expenses show up as operating expenses on the income statement. On the other hand, capital leases are used for longer-term items and give the lessee ownership rights; they depreciate and incur interest payments, and are counted as debt. Subsequently, the difference is based on the conditions of a capital leases:
  • If there’s a transfer of ownership at the end of the term.
  • If there’s an option to purchase the asset at a bargain price at the end of the term.
  • If the term of the lease is greater than 75% of the useful life of the asset.
  • If the present value of the lease payments is greater than 90% of the asset’s fair market value.

8. What are deferred tax assets/liabilities and how do they arise?
8.1 Answering method:

• Define deferred tax assets/liabilities:
  • Deferred tax liabilities arise when you have a tax expense on the income statement but haven’t actually paid that tax in cold, hard cash yet. Deferred tax assets arise when you pay taxes in cash but haven’t expensed them on the income statement yet.
• The difference between their way arising based on tax purposes:
  • They arise because of temporary differences between what a company can deduct for cash tax purposes vs. What they can deduct for book tax purposes.

8.2 Example

• Deferred tax assets/liabilities arise because of temporary differences between what a company can deduct for cash tax purposes vs. What they can deduct for book tax purposes. While deferred tax liabilities arise when you have a tax expense on the income statement but haven’t actually paid that tax in cold, hard cash yet, deferred tax assets arise when you pay taxes in cash but haven’t expensed them on the income statement yet. They’re most common with asset write-ups and write-downs in M&A deals – an asset write-up will produce a deferred tax liability while a write-down will produce a deferred tax asset.

9. Walk me through the major items in shareholders’ equity.

9.1 Answering method

• You have to show your knowledge about items of shareholders’ equity: common stock, retained earnings, additional paid in capital, treasury stock and accumulated other comprehensive income;
• Define each of the item.

9.2 Example

• Common stock – simply the par value of however much stock the company has issued.
• Retained earnings – how much of the company’s net income it has “saved up” over time.
• Additional paid in capital – this keeps track of how much stock-based compensation has been issued and how much new stock employees exercising options have created. It also includes how much over par value a company raises in an IPO or other equity offering.
• Treasury stock – the dollar amount of shares that the company has bought back.
• Accumulated other comprehensive income – this is a “catch-all” that includes other items that don’t fit anywhere else, like the effect of foreign currency exchange rates changing.

10. What procedures do you think are important for testing cash account?

10.1 Answering method

• Firstly, applicants need to analyze main assertion of cash account: existence, completeness, valuation, cut-off:
  • Existence: test for the existence of cash in account by checking the cash count minute and bank statement;
  • Completeness: test whether cash is sufficient or not. In another way, test the balance of cash account;
  • Valuation: test whether foreign currencies are recorded properly based on the exchange rate or not in the financial report in domestic currency.
• Then, we have to assess the procedure corresponding to each assertion:
  • Observation and reconcile procedure to test existence and completeness;
  • Send confirmation letter procedure to test completeness;
  • Revaluation procedure to test the true and fair valuation of foreign currencies;
  • Cut-off procedure to test the record of transactions in the right time.

10.2 Example

• Existence and completeness: need to reconcile the cash count minute with Leadsheet, general ledger (GL) with Leadsheet and Leadsheet with bank statement. Furthermore, for cash at bank, it would be essential to send confirmation letters to banks.
• Firstly, auditor need to use overall analytical review procedure (OARP) to note unusual items.
• Roll forward and roll backward: roll backward is used for events after 31.12, which is opposed to roll backward procedure.
• Valuation: the revaluation procedure is appropriate to use for foreign currencies (1113). It helps auditor exchange foreign currencies to VND for financial report.
• Cut-off: selecting all transactions at the end of this year and at the beginning of next year, then reconcile with bank statements.

11. What are the purpose of auditing? How many types of auditing opinions are there?

11.1 Answering method

• Purpose:
  • To provide an independent opinion to the shareholders on the truth and fairness of the financial statements.
• Types of auditing opinions:
  • Qualified opinion;
  • Adverse opinion;
  • Disclaimer of opinion;
  • Give definition for each type of auditing opinion.

11.2 Example

• The purpose of auditing is to provide an independent opinion to the shareholders on the truth and fairness of the financial statements.
• There are 3 types of auditing opinions:
• Qualified opinion: the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are material but not pervasive to the financial statements, or the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, but concludes that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive.
• Adverse opinion: after having obtained enough good audit evidence, the auditor concludes that misstatements, individually or when grouped with other misstatements, are both material and pervasive to the financial statements.
• Disclaimer of opinion: the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.

12. How do the 3 statements link together?

12.1 Answering method

• Mention the names of 3 statements;
• Analyze the connections between these statements.

12.2 Example

• The 3 statements are: income statement, balance sheet and Cash Flow Statement.
• The bottom line of the income statement is net income. Net income links to both the balance sheet and cash flow statement.
• In terms of the balance sheet, net income flows into stockholder’s equity via retained earnings. Retained earnings is equal to the previous period’s retained earnings plus net income from this period less dividends from this period.
• In terms of the cash flow statement, net income is the first line as it is used to calculate cash flows from operations. Also, any non-cash expenses or non-cash income from the income statement (i.e., depreciation and amortization) flow into the cash flow statement and adjust net income to arrive at cash flow from operations.
• Any balance sheet items that have a cash impact (i.e., working capital, financing, PP&E, etc.) Are linked to the cash flow statement since it is either a source or use of cash. The net change in cash on the cash flow statement and cash from the previous period’s balance sheet comprise cash for this period.

13. What are the criteria to recognize revenue?
13.1 Answering method

• Mention the sources of sales recognition (VAS14);
• Describe 5 criteria.

13.2 Example

• All the criteria of sales recognition are stated in VAS 14.
• The enterprise has transferred the majority of risks and benefits associated with the right to own the products or goods to the buyer.
• The enterprise no longer holds the right to manage the goods as the goods owner, or the right to control the goods.
• Turnover has been determined with relative certainty.
• The enterprise has gained or will gain economic benefits from the good sale transaction.
• It is possible to determine the costs related to the goods sale transaction.

14. Let’s say Apple is buying $100 worth of new iPad factories with debt. How are all 3 statements affected at the start of “Year 1,” before anything else happens?

14.1 Answering method

• Name 3 statements: Cash Flow Statement, Balance Sheet and Income Statement;
• Analyze how these 3 statements would change:
  • Income Statement: No change;
  • Cash Flow Statement: The addition investment in factories would show up as a net reduction. The additional $100 worth of debt raise would show up as an addition;
  • Balance Sheet: There is an additional $100 worth of factories in the Plants, Property and Equipment.

14.2 Example

• At the start of “Year 1,” before anything else has happened, there would be no changes on Apple’s Income Statement (yet).
• On the Cash Flow Statement, the additional investment in factories would show up under Cash Flow from Investing as a net reduction in Cash Flow (so Cash Flow is down by $100 so far). And the additional $100 worth of debt raised would show up as an addition to Cash Flow, canceling out the investment activity. So the cash number stays the same.
• On the Balance Sheet, there is now an additional $100 worth of factories in the Plants, Property & Equipment line, so PP&E is up by $100 and Assets is therefore up by $100. On the other side, debt is up by $100 as well and so both sides balance.

15. Can you give examples of major line items on each of the financial statements?

15.1 Answering method

• Name the 3 statements: Income Statement, Balance Sheet and Cash Flow Statement;
• Give the examples of major line items on each statements:
• Income Statement: Revenue, COGS, Net income…
• Balance Sheet: Cash, Account receivable, inventory…
• Cash Flow Statement: Net Income; Depreciation & Amortization; Stock-Based Compensation; Changes in Operating Assets & Liabilities

15.2 Example

• The 3 statements are Income Statement, Balance Sheet and Cash Flow Statement;
• Income Statement: Revenue; Cost of Goods Sold; SG&A (Selling, General & Administrative Expenses); Operating Income; Pretax Income; Net Income;
• Balance Sheet: Cash; Accounts Receivable; Inventory; Plants, Property & Equipment (PP&E); Accounts Payable; Accrued Expenses; Debt; Shareholders’ Equity;
• Cash Flow Statement: Net Income; Depreciation & Amortization; Stock-Based Compensation; Changes in Operating Assets & Liabilities; Cash Flow From Operations; Capital Expenditures; Cash Flow From Investing; Sale/Purchase of Securities.

16. If I were stranded on a desert island, only had 1 statement and I wanted to review the overall health of a company – which statement would I use and why?
16.1 Answering method

• Give the answer: Cash Flow Statement;
• Give explanation:
  • It gives a true picture of how much cash the company is actually generating, independent of all the non-cash expenses you might have.

16.2 Example

• You would use the Cash Flow Statement.
• Because it gives a true picture of how much cash the company is actually generating, independent of all the non-cash expenses you might have. And that’s the #1 thing you care about when analyzing the overall financial health of any business – its cash flow.

17. If depreciation is a non-cash expense, why does it affect the cash balance?

17.1 Answering method

• Depreciation is tax-deductible;
• Taxes are a cash expense, depreciation affects cash by reducing the amount of taxes you pay.

17.2 Example

• Although Depreciation is a non-cash expense, it is tax-deductible. Since taxes are a cash expense, Depreciation affects cash by reducing the amount of taxes you pay.

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