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

Sundaram Textiles Ltd. has an internal audit function that reports administratively to the CFO but functionally to the Audit Committee. The CFO asks the internal auditor to drop a planned review of the finance department's treasury operations. Which response best protects the independence of internal audit?

The internal auditor should escalate the CFO's request to the Audit Committee. Because internal audit reports functionally to the committee, which approves the audit plan, management cannot curtail scope in its own area. Dropping the review would impair the independence and objectivity of the function.

  1. ADrop the review because the CFO is the administrative superior
  2. BEscalate the request to the Audit Committee, which approves the audit planCorrect
  3. CPostpone the review to the next year without informing anyone
  4. DAsk the treasury head to decide whether the review is needed

Explanation

Functional reporting to the Audit Committee means the audit plan and its scope are approved by the committee, not by management. The CFO's request limits scope in an area under his own control, so it should be escalated to the committee. Dropping the review would compromise independence.

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