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ACCA Strategic Professional · Strategic Business Leader · Audit and compliance

Tavira Foods has been listed for two years. The board is debating whether its internal auditors could replace the external audit to save fees. Which statement best explains why this is NOT appropriate?

Internal audit cannot replace external audit because the external audit gives an independent opinion to shareholders on whether the financial statements are true and fair. Internal auditors are part of the organisation and report to management or the board, so they lack the required independence for that statutory role.

  1. AInternal auditors are never permitted to review financial controls
  2. BThe external audit provides independent assurance to shareholders on the truth and fairness of the financial statements, which internal audit, being part of the organisation and accountable to management, cannot giveCorrect
  3. CInternal auditors lack knowledge of the company's business
  4. DExternal audit is a voluntary activity, so cost is the only consideration

Explanation

External audit is a statutory, independent opinion addressed to shareholders on the financial statements. Internal audit serves management and the board, and is not independent of the entity. Internal auditors can review financial controls and know the business well, so those options are wrong.

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