Which option most directly supports auditor independence and governance?

• A. A board with no independent members.
• B. Allowing management to hire and fire external auditors.
• C. Having an external auditor that reports to the board, with an independent audit committee oversight.
• D. Restricting disclosure of audit findings.

Answer: (C)

The key idea here is ensuring the external auditor remains free from management influence and is subject to board-level governance. When the external auditor reports to the board and is overseen by an independent audit committee, there is a clear, formal channel that protects both independence in fact and independence in appearance. The audit committee acts as a buffer between management and the auditor, ensuring there are no undue pressures, conflicts, or instructions that could sway the auditor’s judgment. This structure provides transparent oversight, access to necessary information, and accountability to shareholders or stakeholders.

The other scenarios weaken independence or governance. A board with no independent members removes an essential outside check, increasing the risk of collusion or biased decision-making. Letting management hire and fire the auditor places control in the hands of those who could benefit from favorable findings, eroding independence. Restricting disclosure of audit findings directly undermines transparency and accountability, which are fundamental to good governance and credible reporting.