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ACCA Strategic Professional · Strategic Business Leader · Audit and compliance

Orsino plc's internal audit function reports to the finance director. Following a compliance review, internal audit found that the finance director's team had breached a regulatory reporting rule, but the finding was softened before reaching the audit committee. The chair of the audit committee wants to remedy the underlying governance weakness. Which action best addresses the root cause?

The best remedy is for the head of internal audit to report functionally to the audit committee with direct access to its chair. The problem is a lack of independence, since findings about the finance director's team were softened. Giving the director approval rights or narrowing scope would worsen it.

  1. AHave the head of internal audit report functionally to the audit committee, with direct access to its chairCorrect
  2. BReplace the internal audit function with an annual external audit only
  3. CRequire the finance director to approve all internal audit reports for accuracy
  4. DRemove regulatory reporting from the scope of internal audit

Explanation

The root cause is a lack of independence: internal audit reports to the executive whose area it reviews. Functional reporting to the audit committee protects objectivity and ensures compliance findings are not filtered. Finance director approval worsens the problem, and external audit does not replace internal compliance monitoring.

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