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ACCA Strategic Professional · Strategic Business Leader · Internal control and management reporting

Zentra Plc is a listed manufacturer. Its board wants an independent body to oversee the integrity of financial reporting, review the effectiveness of internal control and risk systems, and recommend the appointment of the external auditor. Which board structure best meets this need?

An audit committee made up mainly of independent non-executive directors fits best. It oversees financial reporting integrity, reviews internal control and risk systems, and recommends the external auditor, and its independence from executives gives its oversight credibility that other committees lack.

  1. AAn audit committee made up mainly of independent non-executive directorsCorrect
  2. BA remuneration committee chaired by the chief executive
  3. CAn executive management committee led by the finance director
  4. DA nominations committee of senior shareholders

Explanation

The audit committee, composed of independent non-executive directors, is the governance mechanism that oversees financial reporting integrity, internal control and risk systems, and external auditor appointment. The remuneration and nominations committees deal with pay and board appointments. An executive committee led by the finance director lacks independence.

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