In an Audit of Financial Statements of a Non-Public Company

question 41

Multiple Choice

In an audit of financial statements of a non-public company in accordance with generally accepted auditing standards, an auditor is required to:

• A)document the auditor's understanding of the entity's internal control.
• B)search for significant deficiencies in the operation of the internal controls.
• C)perform tests of controls to evaluate the effectiveness of the entity's accounting system.
• D)determine whether control activities are operating effectively to prevent or detect material misstatements.

---

Definitions:

Horizontal Analysis

A financial analysis technique that compares historical financial data over a series of reporting periods to identify trends and growth patterns.

Comparative Income Statements

Financial statements that present the revenues, expenses, and net income of a company over multiple periods for comparison.

Debt Management Ratios

Those ratios—debt to total assets, debt to stockholders’ equity, and times interest earned—which measure a company’s mix of debt and equity financing.

Equity Financing

The process of raising capital through the sale of shares in a company, leading to share ownership by investors.