Question

Melissa is a staff accountant for Quality Paper Company suspected that management might have used "creative accounting" to improve company performance. This situation best reflects a weakness in which aspect of internal environment, as discussed in the COSO Enterprise Risk Management Framework?

a. Integrity and ethical values.
b. Risk management philosophy.
c. Restrict access to assets.
d. Methods of assigning authority and responsibility.

Answer 1

The situation described indicates a weakness in 'integrity and ethical values' according to the COSO Enterprise Risk Management Framework, as it suggests compromised ethical standards by engaging in 'creative accounting.'

Step-by-step explanation:

Melissa's suspicion of management using "creative accounting" to improve company performance reflects a potential weakness in integrity and ethical values within the internal environment. According to the COSO Enterprise Risk Management Framework, integrity and ethical values form the core element of an organization's internal environment and influence the overall tone of the company, setting the standard for what is considered acceptable behavior.

In this context, engaging in creative accounting practices that possibly distort the company's financial health to appear more favorable may indicate compromised ethical standards. This situation does not necessarily pertain to the other aspects such as risk management philosophy, restricting access to assets, or methods of assigning authority and responsibility.