(a) One of the components of an internal control system is control activities. Briefly explain

what control activities are and why they are important.

(b) Control activities relevant to a financial statement audit may be divided into 5 major

categories. List the five categories of control activities and give one specific example of

each category of control activities in the sales area of a wholesale trading company.

(c) Discuss s ix factors which contribute to the fact that internal control risk of an entity can never be reduced to zero ?

(d) Suggest an audit procedure that you will perform to verify whether each of the internal control procedures listed below is effectively operated or not.

1. The factory supervisor examines the clock card of each worker on a weekly basis

and initial on the clock card

2. The cashier office is locked and access to it is restricted by entry code.

3. The personnel information system prompts for an entry if any field on the online

personal information record form is not filled when a new employee record is created

(Note: Only the first audit procedure of each of the above internal control procedur es wil l be marked.)

(e) Give an example each to illustrate how the accounting treatment of a purchase transaction may violate the completeness assertion but not the cut-off assertion and vice versa.