The following statements relate to general principles or terms used in the audit of financial statements. For each of the independent statements (a)-(e) below, identify and explain two errors and suggest the corrections needed.

(a) Internal control system (4 marks)

The following internal control activities are all relevant to an audit:

(i) Installing and monitoring fire sprinkler systems for tenants by the landlord of a shopping mall.

(ii) Counting the number of customers visiting a shopping mall by the landlord.

(b) Internal control system (4 marks)

It is the auditors responsibility to establish and maintain an internal control system to ensure efficient and effective operations and accurate financial reporting.

(c) Audit procedures (4 marks)

Tests of controls are usually performed during the year end visit and include audit procedures such as external confirmation and analytical procedures.

(d) Audit evidence (4 marks)

Auditors need to obtain sufficient and appropriate audit evidence. Reliability of evidence is not important as long as we have sufficient quantity of evidence. It is important for auditors to gather the evidence himself/herself. It is not acceptable to rely on internal auditors or any experts outside of the audit team.

(e) Audit strategy (4 marks)

In accordance with the Hong Kong Standards of Auditing, you have developed an understanding of internal controls and continued that the design is effective and the control risk is low. Next, you document your understanding of the internal controls using a management representation letter. Now you are ready to perform tests of transactions as you have adopted a substantive strategy.