Internal Factors And Governance Structure Practice Test

You are conducting a review engagement for a nonissuer not-for-profit organization. The organization’s governance structure includes a volunteer board that approves the budget, but there is no documented conflict-of-interest policy and no record of annual disclosures by board members. Management informs you that a board member’s company provides significant services to the entity. Which factor would most likely affect the auditor's governance assessment?

You are auditing an issuer pharmaceutical distributor. The audit committee is independent, but management has not implemented a formal process to evaluate compliance risks related to new regulations, and internal audit reports are not shared with the audit committee. As part of understanding the control environment and governance oversight, you must determine how these conditions affect the audit approach. Based on the entity's control environment, which response is most appropriate?