ACCA Strategic Professional · Strategic Business Leader · Management and internal control systems
Kestrel Foods plc is listed and its board is dominated by executive directors. Shareholders are concerned that the finance director and the external auditor have a close working relationship, which may weaken the auditor's scrutiny of the financial statements. Which governance mechanism would most directly address this concern?
An audit committee of independent non-executive directors addresses the concern most directly. It oversees the external auditor's appointment, independence and findings, so the auditor reports to a body independent of the finance director rather than relying on a close relationship with executive management.
- AAn audit committee of independent non-executive directors that oversees the external auditor relationshipCorrect
- BA larger bonus scheme for the finance director linked to profit
- CMoving the internal audit function under the finance director
- DReducing the number of board meetings to cut costs
Explanation
An audit committee made up of independent non-executive directors acts as a buffer between management and the external auditor, reviewing independence, fees and findings. Placing internal audit under the finance director would increase, not reduce, management influence.
Did you get it right without looking?
One question tells you little. A timed set on Management and internal control systems shows your real accuracy, how long you take and where you lose marks.
More Management and internal control systems questions
- Halvorsen Logistics has a finance clerk who also approves supplier invoices, raises payments and reconciles the bank account. The audit comm…
- Marlow Group is a listed company whose audit committee has only two members, both of whom are executive directors. A new investor asks what …
- Calder Pharma is deciding between outsourcing internal audit to a professional firm and keeping it in-house. Which of the following is a rec…
- Tessaro Group's audit committee receives a report from the external auditor identifying a significant deficiency: sales staff can both raise…
- Wexley Foods operates in several countries. The audit committee wants assurance that employees comply with anti-bribery laws and internal po…
- Zephyr Logistics outsourced its internal audit two years ago. The board now notices that audit findings are generic, the provider rotates ju…