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CS Professional · Internal and Forensic Audit · Internal Audit: Introduction and Overview

Mehra Steels Ltd.'s management says, 'Our statutory auditor already audits us, so an internal audit adds nothing.' Which response correctly identifies the key distinction between the two?

The two differ in appointment, audience and scope. The internal auditor is appointed by management or the board, reports to them, and covers operations, controls and risk broadly. The statutory auditor is appointed by members and reports to them on the financial statements. One cannot replace the other.

  1. AInternal audit is appointed by and serves management or those charged with governance and covers operations broadly, whereas the statutory auditor reports independently to members on the financial statementsCorrect
  2. BBoth are appointed by the members at the annual general meeting and report to them in identical terms
  3. CThe internal auditor's report is addressed to members and replaces the statutory audit report
  4. DStatutory audit covers all operational efficiency, while internal audit covers only the tax computation

Explanation

The statutory auditor is appointed by members and reports to them on whether financial statements give a true and fair view. The internal auditor is appointed by the management or board and reports to them, with a wider scope including operations and risk. Internal audit cannot replace the statutory audit report, so the other options are wrong.

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