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ACCA Strategic Professional · Strategic Business Leader · Audit and compliance

Wexley Plc's audit committee receives an internal audit report showing that several regional managers override inventory controls to meet sales targets. The chief executive says the matter is minor and asks that it not be escalated. Which action should the audit committee take?

The audit committee should review the findings independently, require remediation with deadlines, and examine whether sales-target incentives and tone at the top are causing the control overrides. Accepting the chief executive's request would abandon its oversight duty, and the external auditor cannot take on management's remedial work.

  1. AAccept the chief executive's view because management is responsible for controls
  2. BReview the findings, require management to remediate with deadlines, and consider whether the incentive structure and tone at the top are driving the overrideCorrect
  3. CInstruct the external auditor to take over the remedial work
  4. DDismiss the head of internal audit for raising the matter outside normal channels

Explanation

The committee oversees internal control and must act independently of management pressure. It should assess the severity, ensure remediation is tracked, and examine root causes such as target-driven incentives and culture. Accepting management's view abandons oversight, and the external auditor cannot take over management's remedial responsibilities without impairing independence.

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