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ACCA Strategic Professional · Strategic Business Leader · Internal control and management reporting

Dalton Engineering's audit committee conducts its annual review of internal controls. Management presents a summary stating that no control failures occurred during the year, based only on management's own self-assessment. Which action best reflects an effective review by the committee?

The committee should seek independent assurance, such as internal audit findings, and challenge the basis of management's self-assessment. A self-reported clean bill of health lacks objectivity. The review should cover all significant controls, not just financial ones, and cannot be delegated wholly to the external auditor.

  1. AAccept the summary, since management is responsible for controls
  2. BDelegate the review entirely to the external auditor's management letter
  3. CSeek independent assurance, such as internal audit findings, and challenge how the self-assessment was doneCorrect
  4. DLimit the review to financial controls because other risks are for operational managers

Explanation

An effective review looks at the whole control environment and uses independent evidence, such as internal audit work, rather than relying solely on management's self-assessment. Accepting the summary lacks challenge, the external auditor's letter is narrower, and restricting to financial controls ignores operational and compliance controls.

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