Topic 2: Maintain Independence and Objectivity

Internal auditors are responsible for assuring that the controls in place are adequate to mitigate the risks to achieve the organization's objectives. In providing such assurance and consulting activities, internal audit organization must maintain independence and objectivity.

• Independence is " the freedom from conditions that threaten objectivity or the appearance of objectivity".
• Objectivity is an " unbiased mental attitude that allows internal auditors to perform engagement in such a manner that they have an honest belief in their work product and that no significant quality compromises are made".

Best way to foster independence is through dual reporting lines to the senior management level and the audit committee. Functionally to the board and administratively to the organizational senior management. 

Functional reporting - Provides the ultimate source of independence and authority. This includes:

• Approving the internal audit activity's overall charter
• Approving internal audit risk assessment and related audit plan
• Approving the annual compensation and salary adjustment of the CAE

Administrative reporting - facilitation of the day-to-day operations of the internal audit functions. This includes:

• Budgeting and management accounting
• Human resource administration
• Internal communication and information flow

Following are the ways to achieve organizational independence:

• Have regular and direct communication with the board
• Report to an individual at the senior management level with sufficient authority to promote independence and to ensure broad audit coverage
• Report directly to the audit committee

Policies to promote objectivity:

• Internal auditors should have no operational responsibility or no assurance review of any activity for which they had any authority or responsibility within the past year or a period significant enough to influence their judgement or opinion
• A policy should be in place that endorses the internal auditor's commitment to abiding by the code of ethics, avoiding conflicts of interest, and disclosing any activity that could result in a possible conflict of interest.
• Internal auditors should not subordinate their judgment on audit matters to that of others.
• Internal auditors should perform engagements in such a manner that they have an honest belief ion their work product and that no significant quality compromises are made.

Ongoing assessment of individual objectivity can be done through by CAE or another individual in supervisory capacity for the internal audit activity to review the results of the internal audit work before the related engagement communications are released. 

Impairment to organizational independence and individual objectivity may include personal conflict of interest, scope limitations, restrictions on access to records, personnel, and properties, and resource limitations. Upon recognition or doubts, refer to the CAE. If required, staff reassignment is necessary.