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

Orchard Retail's internal audit department has been asked by the chief executive to design and implement a new inventory control system, and then to audit its operation next year. Which is the main concern?

The main concern is a self-review threat. If internal audit designs and implements the inventory system, it cannot objectively evaluate it later, because it would be judging its own work, which undermines independence and the credibility of its assurance.

  1. ASelf-review threat, because internal audit would be assessing a system it designed, impairing objectivityCorrect
  2. BThe audit would be too costly because inventory is a minor area
  3. CInternal audit lacks authority to review inventory
  4. DThe external auditor must then withdraw from the audit

Explanation

Designing and implementing controls makes internal audit part of management's responsibility. Auditing the same system later creates a self-review threat and impairs objectivity. Cost is not the principal issue, and the external auditor need not withdraw.

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