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ACCA Applied Knowledge · Business and Technology · Accounting and finance functions within business organisations

A company's finance director is also responsible for the internal audit team, and the head of internal audit reports only to her. A board member suggests changing this. Which change would best strengthen the independence of the internal audit function?

Having the head of internal audit report to the audit committee, with access to the board, best strengthens independence. Internal audit then reviews finance without answering to the finance director. Preparing accounts or approving payments would give it operational duties and undermine its objectivity in reviewing them.

  1. AHave the head of internal audit report to the audit committee, with access to the boardCorrect
  2. BMake internal audit responsible for preparing the monthly management accounts
  3. CRequire internal audit to approve all payments above a set limit before they are made

Explanation

Independence is strengthened by reporting lines to the audit committee, away from the executives whose work is reviewed. Preparing accounts or approving payments would make internal audit responsible for operations, creating self-review and compromising its objectivity.

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