Association for Financial Professionals (AFP) Practice Exam

Who does the internal auditor typically report to in an organization?

1. Chief Executive Officer (CEO)

2. Chief Financial Officer (CFO)

3. Treasurer

4. Board of Directors

The correct answer is: Board of Directors

The internal auditor typically reports to the Board of Directors, specifically to the audit committee, which is a subset of the board. This reporting structure is important as it helps maintain the internal auditor's independence from management. By reporting to the board, the internal auditor is able to conduct assessments and evaluations of the organization's financial processes, operations, and compliance without undue influence from executives, such as the CEO or CFO, who might prioritize operational goals over comprehensive risk management. This independence is crucial because it ensures that the internal audit function can objectively evaluate the effectiveness and integrity of the organization's risk management, internal controls, and governance processes. An effective internal audit function can provide the board with insights and assurance that the organization is operating efficiently and adhering to legal and regulatory requirements.