ACCA Applied Knowledge · Business and Technology · Internal controls
The board of Corvin plc wants to report on internal controls in the annual report in line with good governance practice. Which of the following is the most appropriate approach?
The board should report that it is responsible for the internal control system, has reviewed its effectiveness, and has disclosed any significant weaknesses along with the remedial action taken. Controls give only reasonable assurance, so claiming perfection is inappropriate, and the statement remains the board's responsibility.
- AState that controls are perfect and that no fraud can occur
- BReport that the board is responsible for the system, has reviewed its effectiveness, and describe any significant weaknesses found and actions takenCorrect
- CDelegate the whole statement to the external auditors to write
- DOmit any mention of controls to avoid alarming investors
Explanation
Good governance expects the board to accept responsibility for internal control, review its effectiveness at least annually, and disclose significant failings and remedial action. Controls provide only reasonable, not absolute, assurance, so claiming perfection is wrong. The statement is the board's, not the auditors'.
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