Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when:
 
A. Internal auditors have direct access to the board of directors and the entity's management.
 
B. Management is dominated by one individual who is also a shareholder.
 
C. Those charged with governance are active in overseeing the entity's financial reporting policies.
 
D. External policies established by parties outside the entity affect its accounting practices.
 
Answer: B
 
Choice "B" is correct. When management is dominated by one individual who is also a shareholder, there may be an opportunity for management to override control procedures.
 
Choice "D" is incorrect. Influence of external parties serves an oversight role that strengthens the control environment and minimizes the effect of management's attitude.
 
Choice "A" is incorrect. Existence of internal auditors with direct access to the board of directors strengthens the control environment and lessens the effect of management's attitude.
 
Choice "C" is incorrect. Active participation of those charged with governance serves an oversight role that strengthens the control environment and lessens the effect of management's attitude.

 
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