When auditing a private company, the auditor should obtain an understanding of internal control sufficient to:
A)provide reasonable protection against client fraud and defalcations by client employees.
B)assess control risk.
C)provide a basis for suggestions to the client for improving the accounting system.
D)provide a method for safeguarding assets, checking the accuracy and reliability of accounting data, promoting operational efficiency, and encouraging adherence to prescribed managerial policies.

Question

Quizplus · Accepted Answer

When auditing a private company, obtaining an understanding of internal control is necessary to assess control risk. Control risk is the risk that the client's internal control will not prevent or detect material misstatements in the financial statements. While options A, C, and D are also considerations for understanding internal control, they are not the primary reason and are therefore not the best choice.

When Auditing a Private Company, the Auditor Should Obtain an Understanding