In an Audit of Financial Statements of a Private Company

question 73

Multiple Choice

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

• A) Identify specific internal control activities relevant to management's financial statement assertions.
• B) Perform tests of controls to evaluate the effectiveness of the entity's accounting system.
• C) Determine whether procedures are suitably designed to prevent or detect material misstatements.
• D) Document the auditor's understanding of the entity's internal control.

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Definitions:

Fair Value

The financial figure anticipated when disposing of an asset or the price to move a liability in a regulated exchange involving market entities on the date of valuation.

Gain On Bargain Purchase

Occurs when a company acquires another company for a price less than the fair market value of its net assets, resulting in a gain on the acquisition balance sheet.

Income Tax Expense

The accounting expense associated with the income taxes a company is obligated to pay to governmental authorities based on its taxable income.

Tax Rate

A percentage at which an individual or corporation is taxed; the tax authority sets it, and it can vary based on income, property value, sales price, etc.