According to IIA guidance, the internal audit activity must be free from interference in which of the following areas in order to maintain organizational independence?

Question

Options

• AMonitoring resources.
• BCompensating the chief audit executive.
• CDetermining scope.
• DAllocating internal costs.

• A
  4% (1)
• B
  69% (18)
• C
  19% (5)
• D
  8% (2)

Explanation

Compensating the CAE must be approved by the board (or audit committee), not management, because pay control is influence control. If management determined the CAE's compensation, they could effectively pressure the CAE to soften findings, limit scope, or avoid sensitive areas - directly undermining organizational independence. The IIA Standards (1110) specifically require board oversight of CAE remuneration as a structural safeguard against this conflict.

Why the distractors are wrong:

• A (Monitoring resources) is an operational management activity, not a governance-level independence concern.
• C (Determining scope) relates to operational or functional independence - the freedom to conduct audit work without interference - not organizational independence specifically.
• D (Allocating internal costs) is an administrative/financial matter handled within normal management channels and isn't tied to organizational independence in IIA guidance.

Memory tip: Think "Who pays controls." Organizational independence means the board - not management - controls what the CAE earns. If management controlled the paycheck, they'd control the auditor. Compensation = governance lever = board's job.

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