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ACCA Strategic Professional · Strategic Business Leader · Management and internal control systems

Zenith Plc's audit committee is considering whether to recommend that the external auditor also perform a major internal audit outsourcing engagement. The finance director supports this to save cost. The chair notes that the auditor would then review controls it had itself assessed and reported on. Which response is most consistent with good governance and the audit committee's role?

The committee should recommend against the engagement or restrict it. Having the external auditor perform internal audit creates a self-review threat, because it would assess controls it has itself evaluated. Protecting auditor independence is a core audit committee duty, and cost savings or management supervision do not remove the threat.

  1. ARecommend against it or restrict it, because it creates a self-review threat that safeguards may not adequately removeCorrect
  2. BApprove it, since cost savings to shareholders override independence concerns
  3. CApprove it provided the finance director supervises the work
  4. DApprove it because audit committees have no role in non-audit services

Explanation

Audit committees typically approve or restrict non-audit services to protect independence. Outsourced internal audit by the external auditor creates a self-review threat. Finance director supervision adds management influence rather than safeguarding, and cost savings do not override independence.

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