Discuss FIVE main characteristics of the good internal control system and how they can be used in the auditors’ assessment with giving examples.

Question
A. Auditors need to assess the effectiveness of the internal control system of their clients
as part of the audit procedures that need to be conducted before setting the audit plan.
Discuss FIVE main characteristics of the good internal control system and how they
can be used in the auditors’ assessment with giving examples. (10 marks)
B. Apple & Co has been an audit client of your audit firm ANWAR & Co for the last Eight
years. The audit staff of ANWAR & Co and the client staff of Apple & Co have always
celebrated a meal together at the beginning of the final audit process. The finance
director of Apple & Co has suggested this year that both staff can go away for the
weekend – instead of the meal – to a luxury hotel at Apple & Co expense. The finance
director has also suggested that the current year audit fees is negotiated to be a
percentage of Apple & Co net profit for the year.
This year, for the first time, Apple & Co has approached your audit firm to help in
promoting the process of issuing shares – of Apple & Co – in the stock market.
Discussions now are at the early stage and no actions has been taken yet. The total fees
of the audit and other work would fall within acceptable levels in line with applicable
code of ethics.
The financial manager of Apple & Co requires this year that their audit to be completed
within 15 days; however, this is a very busy time for your audit firm and so it is intended
to use more junior staff as they are available. Additionally, in order to save time and
cost, ANWAR & Co have not contacted Apple & Co’s previous auditors.
Required:
Identify and explain FIVE situations where ethical threats which arise from the
above action are existed; and for each ethical threat explain the steps which ANWAR
& Co should adopt to reduce the threats arising. Note: Prepare your answer using
three columns headed The Issue, Ethical threats and Auditor’s response
respectively. (25 marks)