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CS Professional · Internal and Forensic Audit · Emerging Issues and Challenges

At Sagar Logistics Ltd, the internal audit head reports administratively and functionally to the Managing Director, who is also a promoter. Which governance improvement best strengthens the independence of internal audit?

The best improvement is for the internal audit head to report functionally to the audit committee. This separates audit from management influence, including that of a promoter MD, so findings and plans are not shaped by those being audited. Administrative reporting can stay with management.

  1. AMaking the audit head report functionally to the audit committeeCorrect
  2. BReducing the audit plan to high-risk areas only
  3. COutsourcing all audit work to the MD's nominee firm
  4. DHaving the audit head also manage the finance team

Explanation

Functional reporting to the audit committee insulates internal audit from management influence, including the promoter MD. Outsourcing to the MD's nominee keeps dependence. Combining the audit and finance roles would create a self-review threat.

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