When an organization is choosing a new external auditor, which of the following is the most appropriate role for the chief audit executive to…

Question breakdown

Tests

Identify the CAE's appropriate role in external auditor selection

Difficulty

Medium

Key idea: The board or audit committee selects the external auditor, and the CAE can support the process with advice without taking over the decision or management responsibilities.

How to reach the answer

1. Selecting and appointing the external auditor is the responsibility of the board or audit committee, not internal audit.
2. The CAE should avoid management decisions that could impair internal audit's independence or that belong to governance bodies.
3. Advising on regulatory requirements for auditor selection, such as rotation and independence rules, is a supporting role that fits the CAE's knowledge of risk and compliance.
4. Acquiring the service or setting the selection criteria would make the CAE a decision maker in the process.

Each option

• AIncorrect. Reviewing and acquiring the external audit service is a procurement decision that belongs to the audit committee or board, not the CAE.
• BIncorrect. Appraisal and actuarial services have nothing to do with choosing the external auditor.
• CIncorrect. Setting the selection criteria is a decision for the audit committee, and having the CAE do it would overstep the CAE's role.
• DCorrect. Pointing out the regulatory requirements to consider is an advisory input that helps the audit committee without the CAE taking ownership of the selection.

Common trap: Option C appeals because the CAE knows audit quality well, but setting the criteria effectively steers the selection, which is the audit committee's governance responsibility.

In practice: During an external auditor tender, the CAE may brief the audit committee on rotation rules, independence restrictions, and coordination needs, while the committee sets the criteria and makes the appointment.

Remember: In external auditor selection, the CAE advises, for example on regulatory requirements, and the audit committee decides.

Drafted with AI assistance and checked against the answer key.