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CMA Intermediate · Corporate Accounting and Auditing · Report on Internal Financial Control over Financial Reporting

The auditor of Kaveri Textiles Ltd. notes that the management has a documented code of conduct, the board has an active audit committee, and HR policies clearly define authority and responsibility. Which component of internal control is the auditor primarily assessing?

The auditor is assessing the control environment. A code of conduct, an active audit committee and clearly defined authority and responsibility set the tone at the top and the governance culture of the organisation, which forms the foundation for all other components of internal control.

  1. AMonitoring of controls
  2. BControl environmentCorrect
  3. CInformation and communication
  4. DRisk assessment

Explanation

Code of conduct, an active audit committee, and defined authority and responsibility reflect the tone at the top and governance culture. These are features of the control environment. Monitoring concerns ongoing evaluation of control performance, which is not what is described here.

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