Economics · Corporate Governance
A newly appointed junior accountant, Maya, observes that her firm's internal audit department, while highly skilled, frequently struggles with its independence due to reporting directly to the Chief Financial Officer (CFO). This often leads to their recommendations on internal control weaknesses being downplayed or ignored, particularly when they involve areas overseen by the CFO's direct reports. According to best practice in corporate governance and the principles of internal audit, which of the following would be the most effective and enduring solution to enhance the internal audit department's independence and ensure their recommendations are appropriately addressed?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Implement a system where all internal audit findings, regardless of severity, are circulated to every member of the board of directors for review.
- 2Mandate that the internal audit team focuses exclusively on operational audits, thereby avoiding direct scrutiny of financial reporting areas that fall under the CFO's purview.
- 3Establish an Audit Committee comprising entirely of independent non-executive directors, to whom the internal audit department would report functionally.✓
- 4Provide the internal audit team with external ethics training focused on professional skepticism and courage, empowering them to challenge management decisions more assertively.
Correct answer
Establish an Audit Committee comprising entirely of independent non-executive directors, to whom the internal audit department would report functionally.
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