You are about to begin the audit of one of your larger clients, Reggie Distributions Ltd$.($RD$).$RD is a long$-$established wholesale distributor of dairy produce and operates out of three countries; Namibia Botswana and South Africa In each country, the company has a distribution refrigeration warehouse and it also operates a centralised office in Namibia for purchasing and accounting functions. As part of the audit, you must carry out a detailed examination of RD$,$ including its internal controls components.

RD$\text{'}$s internal controls consist of the following components:

Control environment

Risk assessment process

Information system, including processes relevant to financial reporting and communication

Control activities

Monitoring of controls.

REQUIREMENT:

a$)$ Discuss what is meant by the term 'control environment'.

b$)$ Why is it important for the auditor to obtain an understanding of a client company and its environment including the company's internal controls?

c$)$ Outline THREE key factors that an auditor would expect to see in operation in RD$\text{'}$s control environment.

d$)$ Outline FOUR different control activities that should be found in RD and provide one specific example of each.

e$)$ Discuss inherent limitations of an internal control system.