Internal control environment The control environment set the tone of the organization, influencing the control consciousness

of its people. The control environment consists of: Mary bought horrible oranges drink Management philosophy, Board of director, auditor committee, internal audit function, HR policy, organization structure, delegation of authority These are behavior, policies and procedures which reflects the managements attitude towards the internal control. The internal control environment influences the effectiveness of a specific internal control procedure. A strong internal control environment complements the control procedures and a weak internal control environment reduces the effectiveness of the control procedures. 1. Managements philosophy Attitude of management The management through its activities will provide a signal to its employees about the importance of internal controls. The essence of an effectively controlled organization lies in the attitude of its management towards internal control and policies. In explanation for positive contribution to internal control system: If the top management believes that controls are important, others in the organization will sense this commitment and respond by conscientiously observing the control procedures or policies established. Management led by example and employees will emulates them. If the attitude of the management towards the internal control is good, it will influence the mindset of employees and their resulting behavior. In this case... [facts from the question] Hence, management follows the prescribed company policies and procedures strictly and emphasize on the importance of internal controls, then employees are more likely to respect the policies and procedures. In explanation for negative contribution to internal control system: If the management believes that the control is not an important concern, it is almost certain that managements control objectives will not be effectively achieved. There will be a ripple effect of the indifference attitude of the management towards the controls, resulting to employees less likely to adhere to the controls procedures and policies.

Management led by example and employees will emulates them. If the attitude of the management towards the internal control is poor, it will influence the mindset of employees and their resulting behavior. In this case... [facts from the question] Hence, management failed to follows the prescribed company policies and procedures, then employees are less likely to respect the policies and procedures. Risk appetite An organization with an aggressive risk appetite might set aggressive goals. Decisions by the management are often made without thinking twice. An employee, who emulates the actions of the managements, will be influenced to undertake aggressive action to meet their goals. This will negatively affect the control environment. In this case. [Facts from the question] Management lack of consideration in their action results to employees will be less likely to give due consideration before making any decision resulting to higher possibilities of wrong decision made. While an organization that is risk averse, with low appetite for risk, might set conservative goals and decision is made only after careful discussion and analysis. The emphasize of the management on the necessary to consider throughout before making any decision will influence the mindsets of the employees and their resulting behavior. In this case. [Facts from the question] Management carefulness in their action results to employees will be more likely to respect the careful business dealing and give *due consideration before making any decision.*