QUESTION 1 (20 Marks) The control environment includes the governance and management function of an organisation. It focuses largely on the attitude, awareness and actions of those responsible for designing, implementing and monitoring internal controls. One of the main requirements in planning an audit is to study and evaluate the existing internal controls so as to define the tests to be applied to the entity being audited. Internal Control is a process, affected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: - Compliance with applicable laws and regulations - Effectiveness and Efficiency of operations > Reliability of financial reporting With reference to the above statement, critically discuss the components of internal controls that are integrated with managements processes. QUESTION 2 (30 Marks) 2.1 Nicole is a junior auditor for Aquarius Ltd as an auditor she was tasked with the process of conducting the preliminary engagement activities for the client. She requires your assistance in this process as she is unexperienced with regard to the above mentioned task. Nicole needs to determine if the pre-existing conditions for the audit actually exits before she can continue with the audit process. You are required to provide Nicole with the conditions that she will need to evaluate to make a decision. (10 marks) 2.2 The evidence that is gathered by an auditor plays a crucial role in the results of the audit and the recommendations that are provided to management. When gathering evidence with regard to financial misstatements, the auditor is presented with THREE (3) various types of misstatements that could occur at financial statement and assertion level. You are required to discuss these misstatements. (10 marks)