Final answer:
An internal auditor should report to the Audit Committee to ensure the greatest degree of independence. The Audit Committee, part of the Board of Directors, oversees the integrity of financial reporting and compliance. Direct reporting to management or stockholders is considered inappropriate for maintaining auditor independence.
Step-by-step explanation:
To provide for the greatest degree of independence in performing internal auditing functions, an internal auditor most likely should report to the Audit Committee. The Audit Committee is typically a subset of the Board of Directors, elected by the shareholders, and functions as a key component of corporate governance. This committee oversees the company's internal audit function, independent of management, to ensure the integrity of the financial reporting process and compliance with laws and regulations.
Reporting to the Financial Vice-President or Corporate Controller could compromise the auditor's independence since both are part of the company's management team. As for reporting directly to corporate stockholders, it is impractical due to the diffuse nature of ownership. The Lehman Brothers case was an example of how corporate governance can fail when internal audit functions lack proper independence and are not able to provide accurate financial information to investors.