After Obtaining an Understanding of Internal Controls and Assessing Control

question 56

Multiple Choice

After obtaining an understanding of internal controls and assessing control risk on the audit of a non-public company, an auditor decided to perform tests of controls. The auditor most likely decided that:

• A)it would be efficient to perform tests of controls that would result in a reduction in planned substantive tests.
• B)additional evidence to support a further reduction in control risk is not available.
• C)an increase in the assessed level of control risk is justified for certain financial statement assertions.
• D)there were many internal control weaknesses that could allow errors to enter the accounting system.

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Definitions:

New Issue

The term for securities that are offered to the public for the first time through an initial public offering (IPO) or a bond issuance.

Prospectus

A formal legal document that is required by and filed with securities regulatory bodies that provides details about an investment offering to the public.

Venture Capital

Financing provided by investors to startup companies and small businesses with long-term growth potential in exchange for an equity stake.

Venture Capitalist

A Venture Capitalist is an investor who provides capital to startups or small companies looking to expand but do not have access to equities markets.