Which of the following situations undermines the independence of the internal audit activity?

Which of the following situations undermines the independence of the internal audit activity?
A . The internal audit activity is responsible for the company’s risk management function, and its head manager reports to the chief audit executive.
B . A senior member of the internal audit activity once worked in the corporate finance department.
C . The organization’s CEO reviews the internal audit activity’s annual budget per the organization’s policies and procedures.
D . The internal audit activity often uses management’s risk profile to build its own risk profile for annual planning.

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Answer: D

Explanation:

According to IIA standards, particularly Standard 1100 on Independence and Objectivity, using management’s risk assessment to build the internal audit’s risk profile can potentially undermine the independence of the internal audit activity. This dependence on management’s view could bias the audit planning and scope, hence not entirely independent in evaluating management’s assertions or risks identified by management alone.

Reference: IIA Standard 1100 – Independence and Objectivity.