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ACCA Strategic Professional · Strategic Business Leader · Internal control and management reporting

At Harlow Group the internal audit function reports to the finance director, who is also responsible for the accounting processes that internal audit reviews. The audit committee is concerned about objectivity. Which change would most directly address this concern?

The head of internal audit should report functionally to the audit committee chair. This removes the conflict of reporting to the finance director whose area is reviewed, so findings are not filtered, and it protects objectivity far better than budget changes, staff rotation or director approval.

  1. AHave the head of internal audit report functionally to the audit committee chairCorrect
  2. BIncrease the internal audit budget through the finance director
  3. CRotate internal audit staff into the finance department each year
  4. DAsk the finance director to approve all internal audit reports before issue

Explanation

Independence is best secured by a functional reporting line to the audit committee, so findings cannot be filtered by those being reviewed. A bigger budget set by the finance director does not remove the conflict. Rotating staff into finance creates self-review threats, and requiring approval of reports by the finance director worsens the problem.

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