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ACCA Strategic Professional · Strategic Business Leader · Managing, monitoring and mitigating risk

Brindle Foods' board wants an independent assessment of whether its internal control system is operating effectively. The internal audit function reports to the finance director, who is responsible for many of the controls being reviewed. Under good governance practice, what is the most appropriate improvement?

Internal audit should report functionally to the audit committee. This protects its independence and objectivity when reviewing controls run by the finance director, whereas self-assessment or the finance director chairing the committee would leave the conflict of interest in place.

  1. AHave internal audit report functionally to the audit committee to protect its independence and objectivityCorrect
  2. BReplace internal audit with additional line manager self-assessment
  3. CReduce the scope of internal audit to financial controls only
  4. DMake the finance director chair of the audit committee

Explanation

Internal audit must be independent of those whose controls it reviews. Reporting functionally to the audit committee, made up of non-executives, supports objectivity. Self-assessment is not independent, and the finance director chairing the committee would worsen the conflict.

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