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

Marlow Logistics has no internal audit function. The audit committee chair notes that the board receives control assurance only from line managers, who report on their own areas. Which is the most relevant implication for the audit committee's risk monitoring role?

The committee should consider setting up or outsourcing internal audit, because assurance given by managers about their own areas is not independent. Internal audit provides objective assurance over risk management and controls, whereas external audit only covers financial reporting and the board cannot delegate its monitoring responsibility.

  1. ASelf-reported assurance is by itself unlikely to give the committee independent assurance, so it should consider establishing or outsourcing internal auditCorrect
  2. BThe committee can rely fully on managers because they understand operational risks best
  3. CThe external auditor's annual opinion on the financial statements is sufficient assurance over all operational controls
  4. DRisk monitoring is solely the responsibility of the risk manager, so no change is needed

Explanation

Management self-assessment lacks independence and objectivity, so the committee should consider an internal audit function (in-house or outsourced) to give independent assurance on risk management and control. The external audit covers financial reporting, not all operational controls, and the board retains responsibility for monitoring.

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