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IIA Exam IIA-CHAL-QISA Topic 2 Question 15 Discussion
Topic #: 2
When taken by a chief audit executive, which of the following actions would be most likely to prevent division management from exaggerating sales reports
1. Announcing a series of internal audit engagements focusing on compliance with corporate sales-reporting policies.
2. Asking the president and the board to issue a statement of corporate policy stressing the importance of accurate management reporting and the negative consequences of intentional misreporting
3. Setting up a hotline for employees to report fraudulent behavior anonymously.
4. Assisting the controller in developing and monitoring a series of business process indicators, which are historically correlated with, but independent of. sales.
Corporate Policy Statement: Having the president and the board issue a statement stressing the importance of accurate management reporting and the negative consequences of intentional misreporting can help set a tone at the top. This reinforces the significance of ethical behavior and compliance with reporting policies across the organization.
Business Process Indicators: Assisting the controller in developing and monitoring business process indicators that are historically correlated with, but independent of, sales can provide an objective means to validate sales reports. This reduces the opportunity for management to exaggerate sales figures as these indicators can act as a control mechanism.
Other Options:
Internal Audit Engagements: While announcing a series of internal audit engagements (option 1) might deter some misreporting, it might not be as effective as a strong policy statement combined with objective monitoring indicators.
Hotline for Reporting Fraud: Setting up a hotline (option 3) is useful for detecting fraud but might not directly prevent exaggeration in sales reports as effectively as business process indicators.
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