Question

It is important for an auditor to understand a public company's system of internal control in order to:

a) audit internal control over financial reporting.
b) make a preliminary assessment of control risk.
c) develop an audit strategy.
d) All of these answer choices are correct.

Answer 1

Understanding a public company's system of internal control is important for an auditor because it helps with auditing internal control over financial reporting, making a preliminary assessment of control risk, and developing an audit strategy.

Step-by-step explanation:

Understanding a public company's system of internal control is important for an auditor because it helps with auditing internal control over financial reporting, making a preliminary assessment of control risk, and developing an audit strategy. When auditors assess the system of internal control, they examine the processes and procedures in place to ensure the accuracy and reliability of financial reporting. This includes evaluating the company's internal controls related to financial transactions, monitoring activities, and safeguarding assets.

For example, auditors will review the company's controls over cash handling, inventory management, and financial reporting to ensure that they are effectively designed and operating as intended. By understanding the system of internal control, auditors can properly assess the risk of material misstatement in the financial statements, plan their audit procedures, and ultimately provide an opinion on the fairness of the financial statements.