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CS Professional · Internal and Forensic Audit · Reporting under Internal Audit

Hindustan Steel Components Ltd's internal audit function reports to the Managing Director, who is a member of management. The external auditor notes this but also sees other safeguards. What does SA 610 (Revised) indicate about this situation?

If the internal audit function reports to management, this is a significant threat to objectivity, unless other factors collectively provide sufficient safeguards to reduce the threat to an acceptable level. It is not an automatic bar, since individual factors alone are often insufficient to rule out use.

  1. AReporting to management is a significant threat to objectivity unless other factors collectively provide sufficient safeguards to reduce it to an acceptable levelCorrect
  2. BThe work can never be used if the function reports to management, regardless of other factors
  3. CReporting lines are irrelevant to objectivity
  4. DThe threat is eliminated automatically once the internal audit report is signed

Explanation

The standard says an individual factor is often insufficient to conclude work cannot be used. Reporting to management is a significant threat to objectivity unless other factors collectively provide sufficient safeguards. The absolute-prohibition option ignores this.

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