Answer (D) is correct . The internal auditor should inform the appropriate authorities within the organization when wrongdoing is suspected, recommend any necessary investigation, and follow up to see that internal audit activity’s responsibilities have been met (PA 1210.A2-1). When the CAE’s superior is suspected of involvement in fraudulent activities, the appropriate authority within the organization is a level of management higher than the level of fraudulent activity, i.e., the chief executive officer and the audit committee.
Answer (A) is incorrect because Management must determine whether an investigation will be carried out.
Answer (B) is incorrect because The internal auditor should avoid confronting persons suspected of theft or fraud until the appropriate authorities within the organization have been notified and have determined the appropriate action.
Answer (C) is incorrect because The internal auditor’s ethical obligations normally do not include reporting fraudulent activity to outside authorities unless senior management does not take appropriate action.
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