Answered: SENE ELL Co. recently recalled 6…

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter3: Internal Control Over Financial Reporting: Responsibilities Of Management And The External Auditor

Section: Chapter Questions

Problem 40RQSC

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Question

SENE ELL Co. recently recalled 6 million cars due to faulty third-party ignition switches that were linked to 13 deaths. For more than a decade, the company decided against a very inexpensive switch upgrade and continued to use the vendor’s ignition switches even though they did not meet the company’s performance specifications. A growing number of lawsuits ensued and company’s stock sank due to heavy media attention, congressional inquiries, and a Department of Justice criminal investigation. The most significant risk management lesson to date from the company recall is:

CHOICES:

A) An organization that ignores or mistreats its external stakeholders does so at its own peril.

B) The Company failed to develop an ethical organizational culture that guided its strategic planning and daily operations.

C) Cost-benefit analysis is an ineffective decision-making technique, as demonstrated in rejecting a 57-cent fix for the ignition switches.

D) Reliance upon third-party vendors results in unacceptable levels of residual risk.

E) None of the choices

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