When Auditing Financial Statements of a Private Company, the Minimum

question 7

Multiple Choice

When auditing financial statements of a private company, the minimum work an auditor must perform in connection with a company's internal control is best described by which of the following statements?

• A)Perform exhaustive tests of accounting controls and evaluate the company's control system effectiveness.
• B)Determine whether the company's control policies are designed well enough to prevent material misstatements.
• C)Prepare auditing working papers that document the auditor's understanding of the company's internal control.
• D)Design procedures to search for significant deficiencies in the actual operation of the company's internal control.

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Definitions:

Promissory Note

A financial instrument that represents a written promise by one party to pay a specified sum of money to another party, either on demand or at a predetermined future date.

Account Receivable

Funds that are yet to be received from customers to whom goods or services have been sold on credit.

Formal Credit Instrument

A legal document that represents an agreement to extend credit, specifying the terms under which credit is provided and must be repaid.

Maturity Date

The specified date on which the principal amount of a financial instrument is due to be paid in full.