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

Calder Retail Group has no internal audit function. The board is deciding whether to establish one. The group has 40 stores, a recently implemented ERP system, and a history of stock losses and inconsistent compliance with procedures. Which statement best supports establishing an internal audit function?

Internal audit supports the board by giving independent assurance on risk management and control effectiveness across a dispersed and complex business. It does not replace management's responsibility for controls, the external audit, or guarantee that fraud and losses are eliminated.

  1. AInternal audit will replace the need for management to operate internal controls
  2. BInternal audit will provide independent assurance to the board on the effectiveness of risk management and controls across a dispersed, complex operationCorrect
  3. CInternal audit will remove the need for the external audit of the financial statements
  4. DInternal audit will guarantee that all stock losses and fraud are eliminated

Explanation

Internal audit gives the board independent, objective assurance on governance, risk management and control, which is valuable given the scale, system change and control problems. Management still owns controls, external audit remains a statutory matter, and no function can guarantee elimination of fraud.

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