Centralized authority refers to decision-making being concentrated at the top levels of an

organization, ensuring uniform policies and procedures across departments.

Let's analyze each option:

A . Fraud committed through collusion is more likely when authority is centralized.

Incorrect. Centralized authority reduces the chances of fraud by enforcing strict oversight and

controls. Decentralized structures may create more opportunities for fraud due to inconsistent

policies.

B . Centralized managerial authority typically enhances certainty and consistency within an

organization. ✅ (Correct Answer)

Correct. Centralized authority ensures consistent decision-making, standardized processes, and clear

policies, reducing uncertainty.

For example, in a multinational company, a centralized governance structure ensures compliance

with financial reporting standards across all subsidiaries.

C . When authority is centralized, the alignment of activities to achieve business goals typically is

decreased.

Incorrect. Centralized authority actually helps in aligning business activities toward strategic goals by

ensuring uniform direction and coordination.

D . Using separation of duties to mitigate collusion is reduced only when authority is centralized.

Incorrect. Separation of duties (SoD) is a key internal control mechanism that exists regardless of

centralization. Organizations implement SoD through policies, not just governance structures.

IIA Reference:

IIA Standard 2110 – Governance – Emphasizes the importance of clear governance structures in

organizations.

COSO Internal Control – Integrated Framework – Discusses centralization and its impact on risk

management and control effectiveness.

IIA Global Technology Audit Guide (GTAG) – Enterprise Risk Management (ERM) – Highlights the role

of centralized authority in aligning corporate strategies.

ISO 37000:2021 – Governance of Organizations – Outlines how centralized governance improves

organizational consistency and decision-making.