Answer (A) is correct . The internal auditor and the internal audit department can only be an effective control relevant to financial statement audits if the chief internal auditor reports to the board of directors or someone else outside the accounting function. Internal auditing must be independent to be effective.
Answer (B) is incorrect because Intangible benefits may render an internal audit function an effective control even if it is not cost effective. It may not be good management to have an internal auditor who is not cost effective, but that does not affect the internal audit function’s status as a control.
Answer (C) is incorrect because Operational audits deal with effectiveness and efficiency and thus would not influence the effectiveness of the auditor as a control relevant to financial statement audits.
Answer (D) is incorrect because An effective control need not use statistical procedures.
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