Skip to content

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

An internal audit department reports to the finance director, who also decides its work plan and approves its staff appraisals. The company has an audit committee. Which action would most improve the independence of internal audit?

Internal audit should report functionally to the audit committee. This makes it independent of the finance director and executives whose areas it reviews, allowing objective reporting. Letting the finance director approve reports, set scope or absorb audit staff would weaken independence.

  1. AHaving internal audit report functionally to the audit committeeCorrect
  2. BMoving internal audit staff into the finance team to improve their knowledge
  3. CAsking the finance director to approve all internal audit reports before issue
  4. DLimiting internal audit's work to areas the finance director selects

Explanation

Independence is strengthened when internal audit reports to the audit committee, which is independent of the executives whose areas are reviewed. The other options increase reliance on the finance director or embed auditors in the function they review, reducing objectivity. Approval of reports by the finance director would be a particular threat.

Did you get it right without looking?

One question tells you little. A timed set on Accounting and finance functions within business organisations shows your real accuracy, how long you take and where you lose marks.

Practise Accounting and finance functions within business organisationsFree diagnostic mock

More Accounting and finance functions within business organisations questions