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

Sundaram Textiles Ltd appoints an in-house internal audit head who reports administratively to the Chief Financial Officer but functionally to the Audit Committee. Which feature of this arrangement best supports the independence of the internal audit function?

Functional reporting to the Audit Committee best supports independence, because the committee approves the audit plan and receives findings directly. Administrative reporting to the CFO only covers routine matters, and CFO control over the plan would let management influence what is audited.

  1. AAdministrative reporting to the CFO for budget approval
  2. BFunctional reporting to the Audit CommitteeCorrect
  3. CUse of the CFO's templates for audit programmes
  4. DAnnual audit plan approved only by the CFO

Explanation

Independence is safeguarded mainly when the internal audit function reports functionally to the Audit Committee or Board, which approves the plan and reviews findings. Administrative reporting to the CFO is only for day-to-day logistics and does not itself secure independence. Letting the CFO approve the plan alone would weaken independence because the audited function's head controls the scope.

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