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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Conceptual Framework of Corporate Governance

Kaveri Autos Ltd's CFO inflated reported revenue for two years to meet analyst expectations. The independent directors never questioned unusual year-end sales, and the audit committee did not meet the auditors without management present. Which weakness best explains why the fraud persisted?

Ineffective board oversight and a weak independent challenge function explain it. Independent directors and the audit committee are meant to question management and engage auditors independently; failing to probe unusual year-end sales let the revenue inflation continue unchecked.

  1. AExcessive dividend payout
  2. BIneffective board oversight and a weak independent challenge functionCorrect
  3. CToo many women directors on the board
  4. DA long-term CSR commitment

Explanation

Independent directors and the audit committee exist to challenge management and verify reporting. Failure to probe unusual sales and to meet auditors privately shows oversight failure. The other options have no causal link to the misstatement.

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