Skip to content

ACCA Strategic Professional · Advanced Audit and Assurance (International) · Reports to those charged with governance and management

During the audit of Halden Pharma, the auditor discovers that the finance director has overridden a control to book a large manual revenue adjustment, though the adjustment was later found to be valid. The auditor wants to communicate this. To whom should the communication be primarily directed, given that the finance director is a member of management?

The auditor should communicate the override to those charged with governance, such as the audit committee, because it relates to oversight of management and control integrity. Telling only the finance director would defeat independence of the communication, and external disclosure is not automatic given confidentiality duties.

  1. ASolely to the finance director, as the person involved
  2. BSolely to the external regulator, as management override is always reportable
  3. CTo those charged with governance, such as the audit committee, as management override concerns management integrity and oversightCorrect
  4. DTo the company's bankers, since the revenue figure affects covenants

Explanation

Management override of controls is a matter relevant to the oversight responsibilities of those charged with governance. Reporting only to the individual who overrode the control would not be appropriate. External reporting to regulators is not automatic and depends on legal requirements and confidentiality. Bankers have no right to such communication from the auditor without consent.

Did you get it right without looking?

One question tells you little. A timed set on Reports to those charged with governance and management shows your real accuracy, how long you take and where you lose marks.

Practise Reports to those charged with governance and managementFree diagnostic mock

More Reports to those charged with governance and management questions