What is likely the single most effective step that a company can take to set ethical standards?

• A. Outsourcing the internal audit function
• B. Establishing a strong tone at the top by management
• C. Increasing employee compensation
• D. Implementing complex accounting software

Answer: (B)

Verified step by step guidance

1. Understand the concept of 'tone at the top': This refers to the ethical climate and culture established by the leadership of a company. It is the foundation for setting ethical standards and influences the behavior of employees throughout the organization.
2. Evaluate the options provided: Analyze each option to determine its effectiveness in setting ethical standards. For example, outsourcing the internal audit function may improve oversight but does not directly establish ethical standards.
3. Consider the role of management: Management plays a critical role in setting ethical standards by demonstrating integrity, accountability, and ethical behavior. Their actions and decisions set the tone for the entire organization.
4. Recognize the importance of communication: A strong tone at the top involves clear communication of ethical expectations, policies, and consequences for unethical behavior. This ensures employees understand the company's commitment to ethics.
5. Conclude that establishing a strong tone at the top by management is the most effective step: This option directly addresses the need for leadership to model and enforce ethical behavior, which is essential for creating a culture of integrity within the company.