Question

To provide for the greatest degree of independence in performing internal audit functions, an internal auditor most likely should report to the

A. Vice-President - Finance
B. Corporate controller.
C. Audit committee of the board of directors.
D. Corporate stockholders.

Answer 1

For optimal independence, an internal auditor should report to the board of directors to maintain objectivity and mitigate undue executive influence, in alignment with corporate governance principles.

Step-by-step explanation:

To ensure the greatest degree of independence in performing internal audit functions, it's recommended that an internal auditor report directly to the board of directors. The board possesses the authority and responsibility to oversee senior management and protect the interests of stakeholders. Reporting to the board helps in maintaining objectivity and limits undue influence from executives whose activities are being audited, aligning with corporate governance practices.

This structure aids in the transparency and accountability necessary for an efficacious audit. While the ultimate owners of a company are the corporate stockholders, they typically are not involved in daily management, and thus the board of directors act in their interest, being elected by them. Lessons learned from the case of Lehman Brothers highlight the significance of reliable governance structures in the assurance of accurate financial information to investors and the market at large.