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ACCA Strategic Professional · Strategic Business Leader · Audit and compliance

Marlowe Foods plc has a board that wants assurance that its system of internal control is working. The chief executive proposes that managers simply sign a statement each year saying controls are effective, with no testing by any independent function. Which weakness of this proposal is most significant for the board's review of effectiveness?

The key weakness is lack of objectivity. Managers who operate the controls are assessing their own performance and have a vested interest in reporting success. The board needs independent evidence, such as internal audit testing, to form a reliable view of whether internal controls are effective.

  1. AManagers have a vested interest in the outcome, so the review lacks objectivity and independent evidenceCorrect
  2. BAnnual statements are prohibited under all corporate governance codes
  3. CManagers do not understand the operational processes they run
  4. DThe statement would increase the cost of external audit fees to an unacceptable level

Explanation

A review of effectiveness needs objective evidence. Self-certification by those responsible for operating controls creates a self-review threat, so independent testing (for example by internal audit) is needed to support the board's conclusion. The other options are either untrue or not the central issue.

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