Question

Which of the following indicates a strong internal control environment?

1) the internal audit group reports to the audit committee of the board of directors
2) there is no segregation of duties between organization functions
3) there are questions about the integrity of management
4) adverse business conditions exist in the industry

Answer 1

The correct indication of a strong internal control environment is when the internal audit group reports to the audit committee of the board of directors, as it ensures independence and objective assessments.

Step-by-step explanation:

A strong internal control environment is indicated by factors that promote transparency, accountability, and checks and balances within an organization. Among the given options, the internal audit group reporting to the audit committee of the board of directors is a clear sign of a strong internal control environment.

This reporting structure ensures that the internal auditors have a degree of independence from management, allowing them to provide objective assessments of the company's internal controls without undue influence. On the contrary, lack of segregation of duties, questions about management integrity, and adverse business conditions can undermine the effectiveness of internal controls and suggest a weaker control environment.