Which of the following scenarios would most significantly restrict the areas where internal audit could perform assurance services?

Which of the following scenarios would most significantly restrict the areas where internal audit could perform assurance services?
A . Regulators mandate specific audit engagements to be included in the audit plan.
B . The internal audit activity reports functionally to the chief financial officer
C . The internal audit activity reports administratively to the CEO and functionally to the audit committee.
D . The internal audit activity reports administratively to the chief financial officer.

View Answer

Answer: D

Explanation:

The scenario that would most significantly restrict the areas where internal audit could perform assurance services is if the internal audit activity reports administratively to the chief financial officer (CFO). Reporting to the CFO could impair the perceived independence of the internal audit activity because the CFO is typically responsible for the financial and operational aspects of the organization that internal audit frequently assesses. This relationship could create a conflict of interest and limit the scope of audits that can be performed impartially.

Reference: The Institute of Internal Auditors (IIA) – International Standards for the Professional Practice of Internal Auditing