Management philosophy and operating style most likely would have a significant influence on an entity's control environment when:

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Choice "B" is correct. Management philosophy and operating style encompass a broad range of characteristics. Such characteristics may include the following: management's approach to taking and monitoring business risks, management's attitudes and actions toward financial reporting, and management's attitudes toward information processing and accounting functions and personnel. These characteristics are more likely to have a significant influence on the control environment when management is dominated by one individual, since there will be few alternative viewpoints presented. Choice "A" is incorrect. The internal audit function is part of the monitoring component of internal control, not part of the control environment. If the internal auditor reports directly to management, this would reduce their objectivity and perhaps make the monitoring function less effective, but it would have minimal impact on the control environment. Choice "C" is incorrect. Accurate management job descriptions would not change the influence that management philosophy and operating style have on the entity's control environment. Choice "D" is incorrect. The involvement of those charged with governance in the reporting process would tend to moderate or offset the influence that management philosophy and operating style have on the entity's control environment.

Management Philosophy and Operating Style Most Likely Would Have a Significant