Part 1: (10)

1. Explain why the control environment is arguably the most important component of internal control. (5)

2. Auditors should recognize the inherent limitations of internal control. Explain these inherent limitations. What is the implication of these limitations for the audit? (5)

Part 2: For each of the following accounts/transaction cycles, identify five important internal control procedures: (10)

1. Sales/Accounts Receivable: (5)

2. Purchases/Inventory/Accounts payable: