In an Audit of a Nonpublic Company, the Less Control

question 56

True/False

In an audit of a nonpublic company, the less control risk there is, the smaller the amount of planned substantive evidence that is required.

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Definitions:

Adjusting Entries

Journal entries made at the end of an accounting period to update account balances before producing financial statements, necessary for the accrual basis of accounting.

GAAP

Generally Accepted Accounting Principles; a collection of standardized guidelines and practices for financial accounting.

Income Summary

An account in the closing process that summarizes revenues and expenses for a period, transferring the net result to owner's equity.

Retained Earnings

The portion of a company's profits not distributed as dividends but reinvested in the business or kept as reserve.