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ACCA Strategic Professional · Strategic Business Leader · Audit and compliance

Orlin Pharma's audit committee reviews a proposal that the head of internal audit also take over responsibility for designing the company's new anti-fraud controls and then audit them next year. The head argues this uses her expertise efficiently. Which assessment is most appropriate?

The proposal creates a self-review threat because the head of internal audit would audit controls she designed. It is acceptable only if design and audit are separated, with an independent party reviewing the controls. Advice is allowed, but taking management responsibility and then auditing it is not.

  1. AAcceptable only if she designs the controls and a different, independent party audits them, since auditing her own design creates a self-review threatCorrect
  2. BFully acceptable, since expertise outweighs any independence concern
  3. CUnacceptable because internal audit may never give any advice on controls
  4. DAcceptable provided the external auditor is told about it after the audit has been completed

Explanation

Internal audit can give advice, but if it assumes management responsibility by designing and implementing controls, auditing them later is a self-review threat. Independent review by another party addresses that. The claim that no advice is permitted is too extreme, and informing the external auditor does not cure the threat.

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