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Golden Bauhinia Brokerage Ltd wants an internal audit review of its settlement process. Its proposal is that Mr Tse, head of settlements, does the review, reports to himself and sends the board a summary. Which of the following statements are CORRECT? I. Where practicable, the review should be done by an internal audit function free of operating responsibilities. II. Internal audit should have a direct line of communication to Management or the audit committee. III. The annual statutory audit can replace the internal review, as it gives full comfort on internal controls. IV. The reviewer need not have technical competence, provided he is independent of settlements.
Statements I and II are true: Part VI, control guideline 1, of the SFC Internal Control Guidelines (April 2003) says that, where practicable, Management should establish an independent and objective internal audit function free of operating responsibilities, with a direct line of communication to Management or the audit committee. Mr Tse would be reviewing his own operation. Statement III is false: footnote 4 to Part VI distinguishes the review function from statutory audit work, which may give only limited comfort about internal controls. Statement IV is false: control guideline 3 requires Management to ensure that those performing the review have the necessary technical competence and experience. Source: SFC Internal Control Guidelines (April 2003) Part VI and footnote 4 (as at October 2026).
Candidates accept a review by the person who runs the process, or treat the statutory audit as enough. The guidelines want an independent, competent review function.
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