Skip to content

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

Harbin Logistics has strong preventive controls over cash payments but has never tested whether they still operate as designed. Operations have changed substantially after an acquisition. Which COSO component is most clearly deficient, and what does it imply?

Monitoring activities are deficient. Controls exist but have never been tested after significant operational change, so management cannot know whether they still operate effectively. Ongoing and separate evaluations, such as internal audit reviews, are needed to confirm that controls are present and functioning.

  1. AMonitoring activities; ongoing or separate evaluations are needed to confirm controls remain present and functioningCorrect
  2. BRisk assessment; the company should avoid all acquisitions in future
  3. CControl environment; the board must replace all senior management
  4. DControl activities; more preventive controls must be added regardless of cost

Explanation

Monitoring involves ongoing and separate evaluations, such as internal audit reviews, to check controls still work, especially after change. The preventive controls exist, so the gap is verification, not their number. Adding more controls without testing would not address this.

Did you get it right without looking?

One question tells you little. A timed set on Internal control and management reporting shows your real accuracy, how long you take and where you lose marks.

Practise Internal control and management reportingFree diagnostic mock

More Internal control and management reporting questions