ACCA Strategic Professional · Strategic Business Leader · Management and internal control systems
Brightwell Bank has an internal audit function that reports to the finance director, who also sets its budget and approves its work plan. Recently internal audit softened a finding about the finance department's year-end reconciliations. Under good governance practice, what is the most appropriate remedy?
Internal audit should report functionally to the audit committee, which approves its plan, budget and the head's appointment. The problem is lack of independence from the finance director whose area it audits. More staff or more finance director review would not restore objectivity, and external audit has a different purpose.
- AHave internal audit report functionally to the audit committee, which approves its plan, budget and head's appointmentCorrect
- BReplace internal audit with the external auditor for all control testing
- CIncrease the number of internal audit staff within finance
- DRequire the finance director to review all internal audit findings before issue
Explanation
The threat is to independence and objectivity because internal audit reports to the function it audits. Functional reporting to the audit committee, which oversees plan and resourcing, addresses this. Extra staff does not fix independence, and finance director review worsens it. The external auditor cannot replace the internal monitoring role.
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