audit

Assess and maintain an individual internal auditor’s objectivity, including determining whether an individual internal auditor has any impairments to his/her objectivity

Internal Auditor
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How to Assess and Maintain an Individual Internal Auditor’s Objectivity

Objectivity is one of the essential attributes of an internal auditor. According to the International Standards for the Professional Practice of Internal Auditing (Standards), objectivity is “an unbiased mental attitude that allows internal auditors to perform engagements in such a manner that they believe in their work product and that no quality compromises are made. Objectivity requires that internal auditors do not subordinate their judgment on audit matters to that of others.” (Standard 1100)

However, objectivity is not a static state that can be taken for granted. It can be influenced by various factors, such as personal interests, relationships, biases, pressures, or conflicts of interest. Therefore, it is important for internal auditors and their managers to assess and maintain their objectivity on a regular basis, and to take appropriate actions if any impairments are identified.

In this blog post, we will discuss some of the key steps and best practices for assessing and maintaining an individual internal auditor’s objectivity, based on the guidance provided by the Standards and the Institute of Internal Auditors (IIA).

Step 1: Establish a policy and a process for assessing objectivity

The first step is to establish a clear and consistent policy and a process for assessing objectivity at the individual level. The policy should define what constitutes an impairment to objectivity, how to identify and disclose potential or actual impairments, and how to resolve or mitigate them. The policy should also specify the roles and responsibilities of the internal auditors, their managers, and the chief audit executive (CAE) in ensuring objectivity.

The process should include periodic self-assessments by the internal auditors, as well as independent reviews by their managers or peers. The frequency and scope of the assessments should depend on the nature and extent of the audit activities and the risks involved. The assessments should cover both actual and perceived impairments to objectivity, such as:

– Having a direct or indirect personal or financial interest in the audited activity or entity
– Having a close or family relationship with someone who has a significant role or influence in the audited activity or entity
– Having a previous or current involvement in the design, implementation, operation, or oversight of the audited activity or entity
– Having a strong preference or opinion on the outcome of the audit
– Having a conflict of interest with the audit client or stakeholder
– Being subject to undue pressure or influence from internal or external parties
– Being exposed to inappropriate incentives or rewards for audit results
– Being affected by cognitive biases, such as confirmation bias, anchoring bias, availability bias, etc.

The assessments should also consider any factors that may enhance or diminish objectivity, such as:

– Having adequate knowledge, skills, experience, and competence for the audit assignment
– Having access to relevant information and resources for the audit
– Having sufficient time and resources to perform the audit
– Having clear and realistic expectations and objectives for the audit
– Having effective communication and feedback mechanisms with the audit client and stakeholder
– Having a supportive and ethical organizational culture and environment

Step 2: Disclose any potential or actual impairments to objectivity

The second step is to disclose any potential or actual impairments to objectivity that are identified during the assessments. The disclosure should be made in a timely and transparent manner to the appropriate parties, such as:

– The internal auditor’s manager or supervisor
– The CAE or his/her delegate
– The audit client or stakeholder
– The audit committee or board

The disclosure should include:

– The nature and extent of the impairment
– The impact and risk of the impairment on the audit quality and credibility
– The proposed actions to resolve or mitigate the impairment

The disclosure should also be documented in the audit working papers and reports.

Step 3: Resolve or mitigate any impairments to objectivity

The third step is to resolve or mitigate any impairments to objectivity that are disclosed. The resolution or mitigation should be done in consultation with the appropriate parties, such as:

– The internal auditor’s manager or supervisor
– The CAE or his/her delegate
– The audit client or stakeholder
– The audit committee or board

The resolution or mitigation should aim to:

– Eliminate or reduce the source of the impairment
– Minimize or compensate for the effect of the impairment
– Enhance or restore the confidence in the audit

Some examples of resolution or mitigation actions are:

– Withdrawing from or declining an audit assignment that poses an impairment
– Reassigning an internal auditor to another audit assignment that does not pose an impairment
– Obtaining additional supervision, review, or approval for an audit assignment that poses an impairment.