Skip to content

ACCA Strategic Professional · Strategic Business Leader · Management and internal control systems

Marlow Group is a listed company whose audit committee has only two members, both of whom are executive directors. A new investor asks what this implies for the effectiveness of the committee. Which is the best assessment?

The committee lacks independence, so it cannot objectively challenge management or oversee the external auditor. Good governance expects audit committees to comprise independent non-executive directors with financial expertise. Executive directors would effectively review their own reporting and controls, undermining the credibility of the oversight.

  1. AIt lacks independence, so it cannot objectively challenge management or oversee the auditorCorrect
  2. BIt is effective because executive directors know the business best
  3. CIt is effective because two members are enough to avoid deadlock
  4. DIt is irrelevant, since audit committees only deal with tax

Explanation

Good governance codes expect audit committees to consist of independent non-executive directors with relevant financial experience. Executives would be reviewing their own work, so independence and challenge are lost. Business knowledge does not compensate for this.

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.

Practise Management and internal control systemsFree diagnostic mock

More Management and internal control systems questions