ACCA Strategic Professional · Strategic Business Leader · Internal control and management reporting
Maribel Retail's external auditor also provides its outsourced internal audit service and designs the company's new inventory control system. The audit committee chair is concerned. Which issue is the most direct concern under good governance practice?
The main concern is a self-review threat. The firm that designs the inventory controls would then evaluate those same controls as internal and external auditor, compromising objectivity and independence. Governance guidance prefers separating design and assurance roles, and outsourcing itself is permitted, so the other options do not address this.
- ASelf-review threat: the firm would be reviewing controls it designed and assessing its own workCorrect
- BLower fees, because combined services are always cheaper
- CA breach of the rule that internal audit must be carried out by employees
- DThe internal audit scope will be too narrow to cover financial controls
Explanation
When the same firm designs controls and then audits or reviews them, it assesses its own work, creating a self-review threat to objectivity and independence. Internal audit does not have to be staffed by employees, and cost or scope are not the principal concern here.
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