Skip to content

ACCA Strategic Professional · Strategic Business Leader · Audit and compliance

Halden Logistics plc has an internal audit function that reports administratively to the finance director. The audit committee chair is concerned that internal audit has been reluctant to criticise the finance director's department. Which action would most directly strengthen the independence of internal audit?

Having the head of internal audit report functionally to the audit committee most strengthens independence, because the function is then answerable to non-executive directors rather than to the executives whose areas it reviews. Placing staff in finance or narrowing scope would not resolve the conflict.

  1. ARequire the head of internal audit to report functionally to the audit committeeCorrect
  2. BMove internal audit staff into the finance department to improve their knowledge of it
  3. CAsk the external auditor to approve the internal audit plan each year
  4. DReduce internal audit's scope to financial controls only

Explanation

Independence of internal audit is best secured by functional reporting to the audit committee, which is independent of executive management. Embedding staff in finance would make independence worse. External auditors do not approve the internal audit plan, and narrowing the scope does not address the reporting line.

Did you get it right without looking?

One question tells you little. A timed set on Audit and compliance shows your real accuracy, how long you take and where you lose marks.

Practise Audit and complianceFree diagnostic mock

More Audit and compliance questions