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AUI2601 Assignment 2 Semester 2 2024
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AUI2601 Assignment 2 Semester 2 2024
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QUESTION 011.1
The mission of the internal audit activity at Extra Ltd is to enhance and protect organizational value
by providing risk-based and objective assurance, advice, and insight. Internal auditing aims to assist
management in achieving its goals by bringing a systematic, disciplined approach to evaluate and
improve the effectiveness of risk management, control, and governance processes
1.2
• Alignment with Organizational Goals: The internal audit function should be aligned with
the organization's objectives, ensuring that audit activities support overall strategic goals.
• Risk-Based Audit Planning: Developing and following a risk-based audit plan ensures
that audit resources are focused on the most significant areas of risk to the organization.
• Compliance with Standards: Adhering to established internal auditing standards, such as
those set by the Institute of Internal Auditors (IIA), demonstrates professionalism and
competence in audit practices.
• Effective Communication: Timely and clear communication of audit findings and
recommendations to management and the board enhances decision-making and promotes
improvements.
1.3 Comment on the Reporting Structure of the Internal Audit Activity in Relation to
Organizational Independence
The current reporting structure of the internal audit activity at Extra Ltd, where the Chief
Audit Executive (CAE) reports to the Chief Finance Officer (CFO) for both functional and
administrative matters, compromises the organizational independence of the internal audit
function. This structure may lead to conflicts of interest, especially when the audit function
needs to audit activities within the finance department. It creates a scenario where the internal
audit's ability to provide objective assurance on risk management, control, and governance
processes is impaired because the CAE's independence could be influenced by the CFO's
oversight. Effective internal auditing requires a reporting structure that allows the CAE to
operate without undue influence from the areas being audited.
1.4 Preferred Reporting Structure for Organizational Independence According to the
Standards
According to the International Standards for the Professional Practice of Internal Auditing
(Standards), to maintain organizational independence, the internal audit activity should have
dual reporting lines. Functionally, the Chief Audit Executive (CAE) should report to the
board of directors, typically through the audit committee, which ensures that the internal
audit function has the authority to perform its duties objectively without interference from
management. Administratively, the CAE can report to the CEO or another executive, but this
, should only cover day-to-day operations and resource management. This dual reporting
structure helps protect the independence and objectivity of the internal audit activity,
allowing it to provide unbiased assurance on the organization's risk management, control, and
governance processes.
QUESTION 2
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