Certified Internal Auditor (CIA) Part 1: Business Acumen — Question 128

Which of the following situations is most likely to threaten the independence of the internal audit activity?

Answer options

• A. The chief audit executive reports functionally to the board and administratively to the CEO.
• B. The annual budget for the internal audit activity is approved by the chief financial officer.
• C. The internal audit activity is completely outsourced to an external service provider.
• D. The internal audit manager provides consulting services to the procurement department, where she worked during the prior year.

Correct answer:

Explanation

The correct answer is D because providing consulting services to a department where the internal audit manager previously worked can create a conflict of interest, undermining the independence of the internal audit function. Option A shows a dual reporting structure that is generally acceptable, while option B involves budget approval which does not directly impact independence. Option C suggests outsourcing, which can be managed to maintain independence.