ACCA Strategic Professional · Strategic Business Leader · Internal control and management reporting
Zenith Retail plc's board has a written code of conduct, an active audit committee and a clear organisational structure with defined authority levels. However, the chief executive regularly overrides purchasing approval limits and openly dismisses staff who raise concerns. Which component of internal control is most directly weakened by this behaviour?
The control environment is most weakened. Senior management's tone, including overriding approval limits and dismissing those who raise concerns, shapes attitudes to control throughout the organisation. Formal codes and committees exist, but behaviour at the top undermines them, so other control procedures become unreliable.
- AControl environment, because the tone at the top undermines the effectiveness of other controlsCorrect
- BInformation system, because purchasing data is not being captured accurately
- CMonitoring of controls, because the audit committee does not meet often enough
- DRisk assessment process, because the company has not identified its purchasing risks
Explanation
The control environment covers integrity, ethical values, management philosophy and the tone set by senior management. A CEO who overrides limits and punishes whistleblowers weakens the attitude to control across the whole organisation. The case says the audit committee is active, so monitoring is not the primary problem.
Did you get it right without looking?
One question tells you little. A timed set on Internal control and management reporting shows your real accuracy, how long you take and where you lose marks.
More Internal control and management reporting questions
- Brightwell Logistics is a rapidly growing company with 40 depots. The board is deciding whether to set up an internal audit function. Manage…
- Orion Foods has a small finance team. The same employee raises supplier invoices for payment, approves them in the system and releases the b…
- Marlow Logistics has no internal audit function. The audit committee chair notes that the board receives control assurance only from line ma…
- Brindle Retail has no internal audit function. Its audit committee must decide whether to establish one. The company has a stable single-cou…
- At Korvan Logistics, a warehouse system automatically blocks the dispatch of any goods for which no approved sales order exists in the syste…
- Calder Pharma has no internal audit function. The audit committee of this listed company is concerned that management reports on controls ar…