Question 4: (25 marks)

Management of Mango Company is responsible for designing and maintaining its businesss internal control system. In designing the internal control, the management of Mango company considered the five major control components: the control environment, risk assessment, the accounting information system, control activities and monitoring.

Required:

1. Explain how risk assessment contributes to effective internal control and identify four factors that result in increased financial reporting risk. (15 marks)
2. Describe the purpose of the following two types of control activities:

1. Performance reviews (5 marks)
2. Transaction processing (5 marks)