Question

In obtaining an understanding of an entity's internal control in a financial statement audit of a nonpublic company, an auditor is not obligated to:

Answer 1

Complete Question:

In obtaining an understanding of an entity's internal control in a financial statement audit of a non-public company, an auditor is not obligated to:

Group of answer choices

A. Determine whether the control activities have been placed in operation.

B. Perform procedures to understand the design of the internal control policies.

C. Document the understanding of the entity's internal control components.

D. Search for significant deficiencies in the operation of the internal control.

Answer:

D. Search for significant deficiencies in the operation of the internal control.

Explanation:

Internal controls can be defined as the policies, set of rules, and procedures implemented or put in place by an organization to protect its assets, boost efficiency, enhance financial accountability, enforce adherence to company policies and prevent fraudulent behaviors among the employees.

The main purpose of internal controls is to guarantee that loss is eliminated in an organization, as there's a reliable and an accurate accounting system.

Basically, an internal control involves the timely use of both internal and external sources of auditing or financial reporting and as such enhance the maintenance of accurate and proper financial records which would also improve their operational efficiency.

Hence, internal controls if properly executed helps to increase operational efficiency, protect and safeguard assets, provides accurate financial information, prevents fraudulent or unlawful behaviors, timeliness of financial records and reporting.

In obtaining an understanding of an entity's internal control in a financial statement audit of a non-public company, an auditor is obligated to:

I. Determine whether the control activities have been placed in operation.

II. Perform procedures to understand the design of the internal control policies.

III. Document the understanding of the entity's internal control components.