All of the following are true about internal audits except:
a. It provides financial institutions with an independent, objective, unbiased view and provides assurance to the Board.
b. It evaluates and identifies risk, assesses, responds to and reports risks and greatly assists the Board in management and governance.
c. It reports to the Internal Assurance Committee and the Board.
d. It monitors the effectiveness of the compliance programme implemented by a financial institution.
The correct answer and explanation is:
The correct answer is c. It reports to the Internal Assurance Committee and the Board.
Explanation:
Internal audits play a vital role in helping financial institutions achieve their governance, risk management, and compliance objectives. They provide an independent assessment of an organization’s internal controls, risk management, and governance processes. Here’s a breakdown of the options provided:
a. It provides financial institutions with an independent, objective, unbiased view and provides assurance to the Board.
This statement is true. One of the primary functions of an internal audit is to offer an objective and independent evaluation of the institution’s operations, which helps provide assurance to the Board that risks are being effectively managed and internal controls are operating as intended.
b. It evaluates and identifies risk, assesses, responds to and reports risks and greatly assists the Board in management and governance.
This is correct. Internal auditors assess and evaluate risks, ensuring that these risks are properly managed and mitigated. Their work helps the Board make informed decisions about risk management and organizational governance, which is critical for the institution’s long-term success.
c. It reports to the Internal Assurance Committee and the Board.
This is incorrect. In many organizations, the internal audit function is independent and typically reports directly to the Audit Committee of the Board, not to the Internal Assurance Committee. Reporting to the Audit Committee ensures that internal auditors are free from interference and have the authority to carry out their work impartially.
d. It monitors the effectiveness of the compliance program implemented by a financial institution.
This statement is true. Internal audits often monitor and assess the effectiveness of a financial institution’s compliance programs to ensure that the institution is adhering to relevant laws, regulations, and policies.
In conclusion, internal audits are independent, unbiased, and provide assurance to the Board, but they do not report to the Internal Assurance Committee. Instead, they report to the Audit Committee to maintain their independence and effectiveness.