When taken by a chief audit executive, which of the following actions would be most likely to prevent division management from exaggerating sales…

 Corporate Policy Statement: Having the president and the board issue a statement stressing the

importance of accurate management reporting and the negative consequences of intentional

misreporting can help set a tone at the top. This reinforces the significance of ethical behavior and

compliance with reporting policies across the organization.

Reference: Strong tone at the top is critical for fostering an ethical culture and compliance within an

organization (IIA Standard 2110 – Governance).

 Business Process Indicators: Assisting the controller in developing and monitoring business process

indicators that are historically correlated with, but independent of, sales can provide an objective

means to validate sales reports. This reduces the opportunity for management to exaggerate sales

figures as these indicators can act as a control mechanism.

Reference: Implementing independent checks or process indicators is a common practice to ensure

data integrity and prevent manipulation (COSO Internal Control Framework).

 Other Options:

Internal Audit Engagements: While announcing a series of internal audit engagements (option 1)

might deter some misreporting, it might not be as effective as a strong policy statement combined

with objective monitoring indicators.

Hotline for Reporting Fraud: Setting up a hotline (option 3) is useful for detecting fraud but might not

directly prevent exaggeration in sales reports as effectively as business process indicators.