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ACCA Strategic Professional · Strategic Business Leader · Management and internal control systems

Brindle Retail has an in-house internal audit team reporting to the finance director, who also approves its budget and annual plan. The team recently found weaknesses in the finance department's controls, but the finding was removed from the final report. The board considers moving to a co-sourced model. Which statement best assesses this situation?

The underlying problem is the reporting line and weak independence, since the finance director controlled and edited findings about his own area. Co-sourcing adds skills or capacity but will not cure this unless internal audit reports to the audit committee, which also approves its plan and budget.

  1. AThe core problem is the reporting line and lack of independence, so co-sourcing alone will not fix it unless reporting moves to the audit committeeCorrect
  2. BThe core problem is lack of technical skill, so co-sourcing will fully solve it
  3. CThe core problem is that internal audit should never review the finance department
  4. DThe core problem is that in-house teams cannot be objective under any reporting line

Explanation

The finding was suppressed by the person whose area was criticised, showing that independence is compromised by the reporting line. Co-sourcing adds skills or capacity but if the provider still reports to the finance director the same pressure remains. The fix is reporting to the audit committee with protected budget and plan approval.

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