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CS Professional · Internal and Forensic Audit · Practices related to Internal Auditing

At Kaveri Pharma Ltd, the head of internal audit reports administratively to the Chief Financial Officer and functionally to the Audit Committee. The CFO now asks her to drop an audit of the treasury department, which he supervises. Which response best protects the independence of the internal audit function?

She should keep the treasury audit in the plan and escalate the CFO's request to the Audit Committee. Functional reporting to the committee protects against management interference in scope, whereas dropping, secretly deferring or letting the auditee choose scope would compromise independence and objectivity.

  1. ADrop the audit, since the CFO controls her budget
  2. BDefer the audit by one year and tell nobody
  3. CAsk the treasury head to choose the audit scope
  4. DRetain the audit in the plan and escalate the request to the Audit CommitteeCorrect

Explanation

Functional reporting to the Audit Committee exists so that scope and plan are not dictated by management. A request to exclude an area should be escalated to the committee. Dropping, silently deferring or letting the auditee set scope all impair independence.

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