Which of the following should be implemented to promote independence of the internal audit activity?

Organizational independence is a cornerstone of effective internal auditing and is achieved through the internal audit activity's reporting structure. According to The IIA's International Standards for the Professional Practice of Internal Auditing (Standards), the chief audit executive (CAE) must report to a level within the organization that allows the internal audit activity to fulfill its responsibilities without interference. A functional reporting line to the board (or its audit committee) provides the CAE with direct and unrestricted access to the highest level of governance, thereby safeguarding the internal audit activity from potential undue influence by management and promoting its independence.

A. This practice safeguards an individual auditor's objectivity by preventing conflicts of interest, but it does not establish the overall organizational independence of the entire internal audit activity.
B. The internal audit charter defines and documents the activity's independence. While its periodic review is a required and important governance practice, it is the implementation of the reporting structure described in the charter that actively promotes independence.
D. Management not influencing consulting services is an outcome or a desired state resulting from established independence. The primary mechanism to ensure this lack of influence is the structural independence provided by the CAE's reporting line to the board.

1. The Institute of Internal Auditors (IIA). (2017). International Standards for the Professional Practice of Internal Auditing. Standard 1110: Organizational Independence. "The chief audit executive must report to a level within the organization that allows the internal audit activity to fulfill its responsibilities. The chief audit executive must confirm to the board, at least annually, the organizational independence of the internal audit activity."

2. The Institute of Internal Auditors (IIA). (2017). Implementation Guide 1110: Organizational Independence. "Organizational independence is effectively achieved when the chief audit executive reports functionally to the board. Examples of functional reporting to the board involve the board: Approving the internal audit charter; Approving the risk-based internal audit plan; [...] Approving decisions regarding the appointment and removal of the chief audit executive."

3. The Institute of Internal Auditors (IIA). (2017). International Standards for the Professional Practice of Internal Auditing. Standard 1130.A1. "Internal auditors must refrain from assessing specific operations for which they were previously responsible. Objectivity is presumed to be impaired if an internal auditor provides assurance services for an activity for which the internal auditor had responsibility within the previous year." (Relates to option A).

4. Sarens, G., & De Beelde, I. (2006). The relationship between internal audit and senior management: a qualitative analysis of expectations and perceptions. International Journal of Auditing, 10(3), 219-241. https://doi.org/10.1111/j.1099-1123.2006.00348.x. The study emphasizes that a direct reporting line to the audit committee (a subset of the board) is a critical factor for internal audit effectiveness and independence from management.