ACCA Strategic Business Leader (SBL) Practice Exam

How is internal audit defined?

1. An external audit conducted by third-party agencies.

2. An independent appraisal function within an organization.

3. A regulatory requirement for publicly traded companies.

4. A procedure for external compliance assessment.

The correct answer is: An independent appraisal function within an organization.

Internal audit is defined as an independent appraisal function within an organization that is designed to evaluate and improve the effectiveness of risk management, control, and governance processes. This function is essential for enhancing an organization's operations, ensuring compliance with regulations, and safeguarding assets. The independence of the internal audit function allows it to provide impartial assessments and recommendations for improvements, enabling management to address potential issues proactively. In contrast, the other choices do not accurately represent the nature of internal audits. External audits, conducted by third-party agencies, focus on verifying financial statements and compliance for stakeholders outside the organization. Regulatory requirements refer specifically to mandates imposed on publicly traded companies to ensure transparency and accountability, which, while related, are not the definition of internal audit itself. Lastly, a procedure for external compliance assessment suggests an evaluation of adherence to laws and regulations by outside entities, which falls outside the realm of internal auditing's focus on internal processes and controls.