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

Kestrel Components plc has a board that rarely discusses control matters. The CEO openly bypasses approval limits when deadlines are tight, and staff have noticed that nobody is disciplined for doing the same. Which element of internal control is most directly weakened in this case?

The control environment is most directly weakened. A CEO who bypasses approval limits without consequence sets a poor tone at the top, signalling that controls are optional. This undermines every other control activity, whereas the case gives no evidence of problems with information systems, monitoring or risk assessment.

  1. AThe control environment, because the tone set by senior management undermines the importance of controlsCorrect
  2. BThe information system, because transactions are not captured completely
  3. CMonitoring activities, because internal audit reports are not issued on time
  4. DRisk assessment, because the company has not identified its external risks

Explanation

The control environment covers integrity, ethical values, management philosophy and the tone at the top. Here the CEO's disregard of approval limits and the absence of discipline signal that controls are optional. No facts in the case point to problems with information capture, monitoring reports or risk identification.

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