Final answer:
In the audit of a private company, an auditor's tests of controls are influenced by the planned audit strategy. The strategy determines the scope and approach of the audit and whether controls will be tested. Other options presented are not typically aligned with standard audit practices.
Step-by-step explanation:
In the audit of a private company, an auditor's tests of controls are largely dictated by the planned audit strategy. The audit strategy is developed considering the auditor's understanding of the entity and its environment, including the entity's internal control. This strategy helps the auditor determine the nature, timing, and extent of the audit procedures to be performed. If the auditor plans to rely on the operating effectiveness of controls in determining the nature, timing, and extent of substantive procedures, they will test those controls. If not, the auditor may decide to perform substantive procedures without testing the effectiveness of controls.
An auditor's responsibility includes obtaining reasonable assurance that the financial statements as a whole are free from material misstatement, whether due to fraud or error. However, the statement that 'the auditor is not subject to reporting and notification requirements' is incorrect. Regardless of whether it's a private or public company, the auditor has to follow professional standards, which include requirements related to communication and reporting. Also, the suggestion about determining the entity's ability to pay and requesting payment in advance is not a standard audit practice and is not necessarily related to the conduct of an audit.