Due to toe increased operational responsibility of the CEO. The chief audit executive (CAE) of an organization currently reports to the chief financial officer (CFO). What is the likely imped of such a situation?
A.
There may be limitation m the scope of engagements that can be undertaken
B.
The CPO could provide expert advice when auditing areas under his purview
C.
The internal audit activity is adequately positioned when the CAE reports to a member of executive management
D.
The expense of finance staff can be catted upon during an audit of finance-related areas
When the chief audit executive (CAE) reports to the chief financial officer (CFO), it can create a potential conflict of interest and impair the independence of the internal audit activity. This reporting structure may lead to limitations in the scope of engagements, particularly when auditing areas under the CFO's purview. Independence and objectivity are critical for the effectiveness of internal auditing, and reporting to the CFO can undermine these principles, restricting the ability to audit financial and other related areas without bias or undue influence.
The IIA Standards: Standard 1110 – Organizational Independence: "The chief audit executive must report to a level within the organization that allows the internal audit activity to fulfill its responsibilities. The chief audit executive must confirm to the board, at least annually, the organizational independence of the internal audit activity."
IIA Practice Guide: "Independence and Objectivity": Discusses the importance of appropriate reporting lines to maintain audit independence and avoid conflicts of interest.
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