Professional Documents
Culture Documents
Chapter 4
Chapter 4
REVIEW QUESTIONS
1. Assume that management had determined that its organization’s audit committee is not
effective. How do the weaknesses in audit committee affect management’s evaluation of
internal control over financial reporting? Would an ineffective audit committee constitute
a material weakness in internal control over financial reporting? State the rationale for
your response.
The audit committee can expect to review significant accounting and reporting
issues and recent professional and regulatory pronouncements to understand the
potential impact on financial statements. An understanding of how management
develops internal interim financial information is necessary to assess whether
reports are complete and accurate. Audit committees meet separately with
external auditors to discuss matters that the committee or auditors believe should
be discussed privately. The committee also reviews proposed audit approaches
and handle coordination of the audit effort with internal audit staff. When an
internal audit function exists, the committee will review and approve the audit
plan, review staffing and organization of the function, and meet with internal
auditors and management on a periodic basis to discuss matters of concern that
may arise. Where an entity has determined that there is a need to have a separate
internal audit function. The internal audit function usually evaluates and monitors
the adequacy and effectiveness of the internal control systems and so plays a vital
role in managing risks. Internal auditors usually report to the audit committee
directly. The audit committee must monitor the scope of the internal auditor’s
work and review their reports and management responses.
3. What is the objective of the company in having a strong and effective internal control
system?
The objective of the company in having a strong and effective internal control
system and an enterprise risk management framework in the conduct of its
business, taking into account its size, risk profile and complexity of operations.
An effective internal control system embodies the management oversight and
control culture, risk recognition and assessment, and correcting deficiencies.
10. True or False. The terms non-financial reporting, corporate social responsibility, and
triple bottom-line are each sustainability-related terms.
True
11. Define the terms non-financial reporting, corporate social responsibility reporting, and
triple bottom-line reporting. How do these terms relate to sustainability reporting?
The non-financial reporting is a form of transparency reporting where businesses
formally disclose certain information not related to their finances, including
information on human rights. The corporate social responsibility reporting is a
periodical (usually annual) report published by companies with the goal of
sharing their corporate social responsibility actions and results. Then, triple
bottom-line reporting aims to measure the financial, social, and environmental
performance of a company over time. The three terms relate to sustainability
reporting in terms of the report synthesizes and makes public the information
organizations decide to communicate regarding their commitments and actions in
social and environmental areas.
12. What factors have driven the demand for sustainability reporting?
The factors driven the demand for sustainability reporting are investor interest,
socially responsible investment funds and the down jones sustainability.
14. In unethical for a company to provide a sustainability report, but provide no assurance on
the reliability of the information contained therein?
The sustainability report is the disclosure and communication of environmental,
social, and governance (ESG) goals as well as a company’s progress towards
them. The benefits of sustainability reporting include improved corporate
reputation, building consumer confidence, increased innovation, and even
improvement of risk management. It improves financial relations by providing a
unified message and avoiding off-message statements. Since the report is
produced on the basis of internal consensus, it constitutes a regular source of
reliable information. With this, to provide sustainability report is unethical
because if you have no assurance in providing a report then there is a tendency
that your information is not reliable and it will be unethical to the company or
other organizations.