Question 5 (20 marks)

The following questions deal with the topics of internal controls and audit strategies.

Required:

(a) Select and justify the audit strategy you would choose in each of the following situations. Comment on whether you would perform tests of controls under the strategy you have chosen. (i) The internal control component known as the foundation of internal controls is not satisfactory. (ii) Management has designed sufficient control activities and has hired an internal auditor. The other components of internal controls are found to be satisfactory.

(b) Management has certain objectives in setting up internal controls.Discuss the validity of the following sentence: Auditors are equally concerned with all aspects of internal controls set up by management.