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ACCA Applied Knowledge · Business and Technology · Internal controls

Brindle Co's internal auditor reports directly to the finance director, who also approves the internal audit work plan. The audit committee is concerned about the function's effectiveness. Which weakness is most clearly shown?

The clearest weakness is a lack of independence and objectivity. Because the internal auditor reports to and has their work plan approved by the finance director, whose own area may be reviewed, they may be pressured or restricted. Reporting to the audit committee would strengthen independence.

  1. ALack of independence and objectivity of the internal audit functionCorrect
  2. BExcessive use of statistical sampling in audit testing
  3. CFailure to rotate the external auditors
  4. DOver-reliance on automated controls

Explanation

Reporting to and being directed by the finance director, whose area is likely to be reviewed, limits independence. Better practice is for internal audit to report to the audit committee. The other options are not indicated by the facts given.

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