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:

Annually

Relating to a period of one year, typically used in the context of financial reporting, budgeting, or payments.

Federal Insurance Contributions Act

Legislation that mandates the collection of Social Security and Medicare taxes from both employees and employers.

Form 941

A tax form used by employers in the United States to report quarterly federal payroll taxes, including income tax withheld from employees, and both employee and employer shares of social security and Medicare taxes.

Warranty Expense

Costs incurred by a company for repairing, replacing, or compensating for defective products during a warranty period.