An effective internal control requires organisational independence of departments. Organisational independence would be impaired in which of the following situations?
A) The internal auditors report to the audit committee of the board of directors.
B) The financial controller reports to the marketing director.
C) The payroll accounting department reports to the chief accountant.
D) The cashier reports to the treasurer.

Question

Quizplus · Accepted Answer

Organisational independence would be impaired if departments that are supposed to have checks and balances over each other are instead under the same hierarchy. Therefore, in option B, when the financial controller reports to the marketing director, it impairs independence and raises concerns about potential conflicts of interest. In the other options, there is no direct conflict or interference between the departments mentioned. The internal auditors reporting to the audit committee ensures an objective and independent audit function, the payroll accounting department reporting to the chief accountant is a normal reporting relationship, and the cashier reporting to the treasurer provides a separation of duties for handling cash.

An Effective Internal Control Requires Organisational Independence of Departments