ACCA Applied Knowledge · Business and Technology · Internal controls
The head of internal audit at Kestrel Co currently reports to the finance director, whose department is often the subject of audit reviews. Which change would best strengthen the independence of the internal audit function?
Having the head of internal audit report directly to the audit committee best strengthens independence. The committee consists of non-executive directors who are not responsible for the areas audited, so auditors can report findings freely without pressure from the managers whose departments they review.
- ARotate internal auditors into the finance department each year so they understand its processes
- BMake the head of internal audit report to the audit committeeCorrect
- CAsk the finance director to approve the annual internal audit plan
- DReduce the internal audit budget so the team reviews only finance matters
Explanation
Reporting to the audit committee, made up of independent non-executive directors, removes the reliance on executives whose areas are being reviewed. Having the finance director approve the plan or rotating auditors into finance would weaken objectivity.
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