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

Zephyr Logistics outsourced its internal audit two years ago. The board now notices that audit findings are generic, the provider rotates junior staff each year and management ignores recommendations. Which action best addresses the weakness in the outsourcing arrangement?

The best action is a clearer service level agreement setting scope, staff continuity and reporting lines, with the audit committee monitoring whether recommendations are implemented. Outsourcing does not remove the board's responsibility, and reducing scope, abandoning internal audit or placing oversight with the finance director would weaken control.

  1. ADismiss the audit committee and let the finance director oversee the provider
  2. BReduce the scope of audit work so that fewer recommendations are made
  3. CStop all internal audit work since the external auditor performs tests anyway
  4. DAgree a clearer service level agreement with defined scope, staff continuity and reporting lines, with the audit committee monitoring follow-up of recommendationsCorrect

Explanation

Outsourcing needs active management: a defined scope and service standards, staff continuity, and audit committee oversight of implementation of recommendations. Handing oversight to the finance director weakens independence, and cutting scope or abandoning internal audit leaves the control gap.

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