Question

In the Three Lines of Defense Model, the second line of defense involves assurance activity being conducted by individuals reporting through different lines of management than those directly responsible for the internal control activities. Therefore, the level of independence and objectivity of the second line of defence is considered to be greater than the first line. Which of the following would be considered a second line of defense in the Three Lines of Defense Model?

Select one:
a. An accounts payable clerk reviews supporting documents before porcessing an invoice for payment.
b. An accounting supervisor conducts a monthly review to ensure all reconciliations were completed properly.
c. A production line worker inspects finished goods to ensure the company's quality standards are met.
d. A divsional controller conducts a peer review of compliance with financial control standards.

Answer 1

In the Three Lines of Defense Model, the second line of defense represents oversight functions, with b. An accounting supervisor conducting a monthly review as a correct example. This level involves monitoring the effectiveness of operational controls and supports risk management, typically with a higher degree of independence and objectivity than the first line.

Step-by-step explanation:

In the Three Lines of Defense Model, the second line of defense includes oversight functions that provide checks and balances, separate from the front-line operations. While the first line of defense typically involves operational management and their controls, the second line aims to ensure that the controls are working and to support risk management practices.

The correct option that would be considered a second line of defense is:

• b. An accounting supervisor conducts a monthly review to ensure all reconciliations were completed properly.

This activity reflects the second line's function of oversight and monitoring, as it involves a review process to verify the effectiveness of operational controls (e.g., reconciliations) performed by the first line of defense. It demonstrates a greater level of independence and objectivity since the accounting supervisor is not directly involved in the processing but is instead ensuring compliance and accuracy, which are characteristic duties of the second line.