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ACCA Strategic Professional · Strategic Business Leader · Audit and compliance

Tessin Logistics has no internal audit function. Its audit committee is considering whether to set one up. The company operates in 14 countries, has recently introduced a new ERP system and has had two minor frauds in the last year. Which factor most strongly supports establishing an internal audit function?

Operational complexity across many countries, a new ERP system and recent frauds all raise control risk. These conditions justify an internal audit function to give the audit committee ongoing, independent assurance on the effectiveness of controls, rather than relying on management or occasional external audit.

  1. AThe company has a long operating history in the logistics sector
  2. BThe company is listed on a recognised stock exchange
  3. CThe complexity of operations, system change and recent fraud increase the need for ongoing independent assurance on controlsCorrect
  4. DThe external auditor has asked for a lower audit fee

Explanation

Factors that indicate a need for internal audit include scale, diversity and complexity of operations, changes in systems, and fraud or control failures. These raise risk and the need for continuous independent monitoring. Listing alone is not the specific driver here, and audit fee reductions are not a valid reason.

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