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ACCA Strategic Professional · Strategic Business Leader · Audit and compliance

Kavala Logistics has an internal audit team that reports functionally to the chief financial officer (CFO). Last year the CFO asked the team to drop a review of the finance department's expense approvals. A non-executive director is concerned about the team's effectiveness. Which action would most directly strengthen the independence of internal audit?

Independence is best strengthened by making the head of internal audit report functionally to the audit committee, which approves the audit plan. This removes the CFO's ability to restrict scope, whereas CFO budget control, CFO report approval or secondments into finance would weaken objectivity.

  1. AHaving the head of internal audit report functionally to the audit committee, with the committee approving the audit planCorrect
  2. BIncreasing the internal audit budget set by the CFO
  3. CRotating internal auditors into the finance department for two years each
  4. DAsking the CFO to approve each audit report before it is issued

Explanation

Independence is best protected by a functional reporting line to the audit committee, which approves the plan, appointment and removal of the head of internal audit. A budget set by the CFO leaves the CFO's influence intact. Rotation into finance and CFO sign-off of reports would add self-review and interference.

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