You are an audit assistant within the internal audit department of Crofty, a company that manufactures household cleaning products and solutions. The company is rapidly expanding and currently employs over 2,000 staff. Turnover has increased by about 20% for the last three years, due mainly to the aggressive sales strategy employed by the sales manager. Turnover for the year ended 31 December 2020 was 100 million and profit was also high. The Crofty board of directors approved the creation of an internal audit at the beginning of 2020, to assist with the control of the company and also prepare for a possible listing on the stock exchange in 2022. The internal auditors currently report to the finance director. The CEO is keen to see the company comply with principles of good corporate governance and has requested your help with ensuring the company complies in full.

Required:

(a) Explain the reasons why internal auditors should or should not report their findings on internal control to the following:

The board of directors

The finance director

(b) Discuss the merits and shortcomings of Crofty forming an audit committee.

(c) Explain why it would be problematic for Crofty not to comply with good corporate governance principles.