You are currently planning the audit of one of your larger clients, Raddy Ltd. (RD). RD is an established wholesale distributor of dairy products and operates out of Singapore and Malaysia. The company has a distribution refrigeration warehouse in each country and it also operates a centralized office in Singapore for purchasing and accounting functions. You are reviewing the internal control system of RD as part of the audit process. RD’s internal control system consists of the following: 

• Control environment 

• Risk assessment process 

• Information system 

• Control activities 

• Monitoring of controls. 

Required: 

a) Discuss the term ‘control environment’ in the context of an internal control system. 

b) Evaluate the importance for the auditor obtaining an understanding of the client’s company and its environment, including the company’s internal controls? 

c) Outline FOUR (4) key factors that is expected to be present in RD’s control environment. 

d) Discuss FOUR (4) inherent limitations of an internal control system.

Answer rating: 100% (QA)

a A control environment also known as a internal control environment is a term used in financial auditing internal auditing and enterprise risk manage... View the full answer