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ACCA Strategic Professional · Strategic Business Leader · Management and internal control systems

Orion Retail's audit committee wants to ensure that its internal audit function can report weaknesses in controls without fear of reprisal from operational managers whose departments are reviewed. Which arrangement best achieves this?

The head of internal audit should report functionally to the audit committee chair. This gives the function independence from the managers whose areas it reviews, so weaknesses can be reported without pressure or reprisal, and the committee can act on findings and protect the function's standing.

  1. AThe head of internal audit reports functionally to the audit committee chairCorrect
  2. BThe head of internal audit reports to the head of the largest department reviewed
  3. CInternal audit is staffed only by rotating managers from operations
  4. DThe external auditor takes over all internal audit work with no committee involvement

Explanation

Functional reporting to the audit committee gives internal audit independence from the managers it reviews. Reporting to a reviewed department head or staffing with operational managers compromises objectivity.

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