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ACCA Strategic Professional · Strategic Business Leader · Audit and compliance

Quillon Energy's audit committee receives an internal audit report on a key control. Testing found that the control is well designed, but in 30% of sampled cases staff bypassed it during peak periods, and management had not noticed because no monitoring information reached senior levels. Which conclusion about the system of internal control is most appropriate?

Controls are not effective in operation. A well-designed control only gives assurance if it operates consistently, and a 30% bypass rate shows it does not. The absence of monitoring information reaching senior management is a further deficiency, so the audit committee should require corrective action and improved monitoring.

  1. AControls are effective because the design is sound
  2. BControls are ineffective in operation, and the weak monitoring is itself a control deficiency requiring actionCorrect
  3. CThe deficiency is immaterial because only a minority of cases were bypassed
  4. DThe finding relates only to staff discipline and not to the control system

Explanation

Effectiveness requires both appropriate design and consistent operation. A 30% bypass rate shows the control is not operating effectively, and the lack of monitoring means the control environment fails to detect breakdowns. Treating it as a discipline matter or as immaterial ignores the system weakness.

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