Regarding Ihe chief audit executive (CAE). which ot the following is considered an impairment to the independence of the internal audit activity?

Question

Options

• AThe CAE reports administratively to the CEO.
• BThe CAE is asked to submit the liquidation of her travel allowances to human resources for
• CThe CAE's supervisor is responsible for the risk management function.
• DThe CAE is asked to review new procedures before implementation.

• A
  4% (2)
• B
  9% (5)
• C
  71% (40)
• D
  16% (9)

Explanation

When the CAE's supervisor is responsible for risk management, the internal audit activity loses its ability to independently evaluate that function - auditing your own boss's domain creates an obvious conflict of interest and compromises objectivity. Option A is a distractor because administrative reporting to the CEO is standard and acceptable; what matters for independence is functional reporting to the board or audit committee. Option B (submitting travel liquidations to HR) is a routine administrative process that has no bearing on audit independence. Option D (reviewing procedures before implementation) is actually a legitimate advisory role for internal audit and does not impair independence, as long as management retains decision-making authority.

Memory tip: Think of independence as "can audit freely audit X?" - if the CAE's boss owns X (like risk management), the answer is no. The key word to watch for in exam questions is whether someone in audit's reporting chain also owns a significant operational function.

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