ACCA Strategic Professional · Strategic Business Leader · Internal control and management reporting
Zentra Foods, a listed manufacturer, has a board that wants to assess whether its controls over financial reporting are effective. The board asks which element of an internal control framework (such as COSO) sets the tone of the organisation, shaping integrity, ethical values and attitudes to control across all staff. Which component is this?
The control environment is the component that sets the tone of the organisation. It covers integrity, ethical values, board oversight and management attitudes, and it underpins all other control components. Control activities are only the specific procedures, such as approvals and reconciliations, that operate within this environment.
- AControl environmentCorrect
- BControl activities
- CMonitoring activities
- DInformation and communication
Explanation
The control environment is the foundation of internal control. It covers integrity, ethical values, board oversight and management philosophy. Control activities are specific policies and procedures such as approvals and reconciliations, so they do not set the overall tone.
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