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ACCA Strategic Professional · Strategic Business Leader · Internal control and management reporting

Kestrel Foods plc has a listed board with a majority of independent non-executive directors. The audit committee is concerned that its internal audit team reports day to day to the finance director, who is responsible for many of the processes audited. Which change would best strengthen the independence of internal audit?

The head of internal audit should report functionally to the audit committee chair. This gives the function independence from the executives whose areas it reviews, protects objectivity, and ensures findings reach those charged with governance rather than being filtered by management.

  1. ARequire the head of internal audit to report functionally to the audit committee chairCorrect
  2. BRotate internal audit staff into the finance department each year
  3. CMake the finance director responsible for approving the internal audit plan
  4. DReduce the audit scope to areas outside finance

Explanation

Independence of internal audit is best supported by a direct functional reporting line to the audit committee, which is independent of management. Having the finance director approve the plan or limiting scope would weaken independence, and rotating staff into finance creates self-review threats.

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