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CS Professional · Internal and Forensic Audit · Internal Audit Engagements and Planning

Sundaram Textiles Ltd has an internal audit function whose head reports only to the CEO, and the CEO can change the annual audit plan at will. Which feature of a sound internal audit charter would best address this weakness?

A charter that gives the internal audit head a functional reporting line to the audit committee, which approves the audit plan, best fixes the weakness. It secures independence and objectivity, since management can no longer alter scope or findings, unlike options that leave the CEO or CFO in control.

  1. AA charter giving the internal audit head a functional reporting line to the audit committee, which approves the audit planCorrect
  2. BA charter that lets the CFO approve all audit findings before issue
  3. CA charter limiting audits to areas the CEO nominates each year
  4. DA charter that makes the internal audit team responsible for designing the company's controls

Explanation

Functional reporting to the audit committee, with the committee approving the plan, protects the independence and objectivity of internal audit. The CFO review option gives management control over findings, and the CEO-nominated scope keeps the same problem. Designing controls would make auditors audit their own work and impair objectivity.

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