Definition:
Internal Audit Objectivity or objectivity is one of the internal audit codes of ethics that requires the auditor to stay unbiased and highly disciplined in all conditions. The auditor should eliminate or remove all conditions or factors that could impair their professional judgment.
Two main factors auditors need to consider to ensure that they are objective in their work are organizational independence and individual objectivity.
Breaking down:
Internal audits should have the right to report directly to the board of directors or audit committees to maintain objectivity. This includes audit plans, resources, reports, and other major factors that affect the internal audit.
If the internal auditor is limited by senior management to review certain areas where they think some risks might happen, the objectivity of their work might impair. In this case, the internal auditor should report to the audit committee and the board of directors.
Sometimes, the objectivity of an internal audit might impair not only the scope of the audit but also the limitation on a resource such as equipment, personnel, and individual interest.
Situation Where Internal Audit Objectivity Might Impair
Internal audit objectivity might be impaired in the following situations:
- If internal auditors lack sufficient knowledge of the organization or industry they are auditing. It can be difficult for audit teams to remain impartial and independent without a proper understanding.
- When internal auditors develop too close a relationship with management and other staff members, which can make them less objective in their evaluations.
- Increased pressure from management or other stakeholders to produce favorable results can incentivize internal auditors to bias their findings.
- When there are not enough internal audit resources available, it is more difficult to thoroughly investigate all areas of concern within the business.
- Auditors may lack adequate training and/or experience in specialized areas such as fraud or information technology (IT). In these cases, they may be disadvantaged when investigating certain topics requiring specific expertise.
How To Maintain Internal Audit Objectivity?
Maintaining internal audit objectivity is essential for a successful and thorough audit. Internal auditors are responsible for objectively evaluating an organization’s financial accounts, operations, and activities to identify potential issues that can lead to greater risks or losses.
To ensure appropriate objectivity, there are several steps that auditors should take to remain unbiased.
1. Remain free from conflicts of interest: Auditors must stay completely separate from any entity or person with a vested interest in the audit results. This can include those involved with the company’s management or board of directors, vendors, customers, and suppliers.
2. Exercise professional skepticism: It is important for auditors to approach each element they evaluate with an unbiased eye and ask questions when needed to get a fuller picture of the situation. This includes asking probing questions and involving additional people who may have information relevant to the audit when necessary.
3. Take measures to reduce distractions: Internal auditors should ensure they are free from any outside influences that could cloud their judgment when evaluating a situation. This includes avoiding contact with external parties during the audit process and refraining from participating in activities unrelated to their work (such as attending lunch meetings).
4. Record all findings accurately: Auditors should document all their findings clearly and accurately so that their assessment remains impartial and verifiable at any given time. They should also refrain from making assumptions without stating them clearly so that other stakeholders can question them if necessary.
By following these steps, internal auditors can help ensure their assessments remain objective and accurate throughout the process.
Why is Internal Audit Objectivity Important?
Internal audit objectivity is critically important for any organization. Without this, an organization can develop a culture of complacency and opinion-based decision-making, leading to significant operational and financial risks.
Internal audits ensure that an organization’s operations are conducted in compliance with legally required policies and procedures and its own internal guidelines and standards.
Additionally, an internal audit helps identify deficiencies or weaknesses, detect fraud or errors, evaluate internal controls, assess the reliability of financial data, and support management decisions.
Without the objective perspective of internal audits, organizations may be unable to uncover potential issues until it is too late.
Furthermore, external auditors typically favor companies that maintain strong internal control systems and rigorous internal audit processes.
Therefore, maintaining objectivity throughout the entire process—from audit planning through reporting—is essential to ensuring the success of a company’s internal audit program.
