Objectivity, efficiency and due professional care are all significant factors for the successful work of any internal auditor. Yet, the factor that mostly affects the effectiveness of internal auditing and the achievement of required results is the objectivity of internal auditors. Objectivity is a basic characteristic and a corner stone that should characterize any person wants to be an internal auditor, and is a complement for the other corner stone that affects the effectiveness of internal auditing, which is the independence of internal auditing. However, there are some risks that affect the objectivity of internal auditors and require both evaluation by the Chief Audit Executive and development of appropriate means to reduce and handle them if they occurred.
What are the risks that may limit the objectivity of internal auditors?
There are risks that affect the objectivity of internal auditors and have a great impact on the way internal auditors think. They may lead to a bias in sample selection or may affect the judgments and interpretation of the results reached by internal auditors through their work. Only a few papers and studies addressed the risks that affect the objectivity of internal auditors. Yet, a rare study, issued by the Institute of Internal Auditors Research Foundation in 2003 titled “Independence and Impartiality: A Framework – Opportunities for Research in Internal Auditing”, has discussed many risks that endanger the internal auditors’ objectivity, which require us, as internal auditors, to be aware of, given their significance as we are liable to be affected by such risks. The five most important risks that affect the objectivity of internal auditors are as follows:
Risks related to self-review is divided into two parts. The first part is risks resulting from an organization employee joining the internal auditing department. Then, the joining employee carries out auditing tasks on the activities he/she used to perform before in the organization. The second part is risks resulting from repetitive auditing on the same activity by the same internal auditor within a previous short-term period. For example, within one year, the HR department activities were audited twice by the same internal auditor. Moreover, there are other risks that may affect objectivity in cases where an internal auditor provides consultations in a specific field, and then he/she performs auditing tasks in the same field of consultations, or in cases where auditing tasks are performed for works created according to the recommendations of the auditor who recommended their creation.
- Relations and Personal Interests
Social relations in most Arab countries are mostly of a tribal and clannish nature. Therefore, an internal auditor may give preference to the interests of relatives or friends and co-workers over the interest of the work. He/she may, thus, turn a blind eye to some auditing results that may get him into embarrassing situations with them. Subsequently, there are risks resulting from the desire of internal auditors to maintain and keep unharmed their personal relations. In some cases, however, an internal auditor may have personal interests related to the aspect on which he/she audits. For example, he/she may own a company that deals with the organization in which he works, and he/she performs an auditing task, the scope of which includes some data related to his/her own company. Here, it must be said that internal auditing standards have explicitly provided for observing such aspect and avoiding the conflict of interests. Standard No. 1120 mention that “internal auditors must have an impartial, unbiased attitude and avoid any conflict of interest.”
- Social Pressures
Risks resulting from social pressures play a role in steering the thinking of internal auditors so that their thinking is directed towards the thinking of the entity being auditing, which is known as collective thinking. Here, social pressure placed by the administration and employees of the entity being audited plays a role in preventing the internal auditor from practicing professional skepticism or critical thinking. Thus, the definition of objectivity is quite clear in this regard; objectivity, according to the International Standards for the Professional Practice of Internal Auditing, 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 others.”
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.”
4. Trust and Intimacy
Trust and intimacy risks may affect the objectivity of internal auditors through proactive judgments issued by an internal auditor before reaching the results of a required examination. Furthermore, a relationship with the entity being audited as well as the internal auditor’s knowledge and full awareness of all the issued related to the auditing subject matter render him/her overly sympathetic to the audited entity, and may lead him/her to issue proactive judgments as a result of such relationship. The historical information previously available to the internal auditor may play a significant role in reaching such judgments without reliance on the results of a requited examination. He/she may select unrepresentative samples, or may disregard any changes or events that need focus during auditing tasks.
- Career Benefits
Risks related to career benefits may significantly affect the objectivity of internal auditors. They may occur as a result of pressures placed on an internal auditor when he/she is auditing the works of powerful authorities in the organization. Fear of making decisions that may have an impact on the continuity of the internal auditor’s employment in the organization or on his/her career development, or that may affect his/her salary, is a key factor in influencing the scope of auditing, the interpretation of the auditing results reached by the internal auditor, and his/her commitment to carry out the required auditing procedures and to select representative samples.
Dealing With Risks That Affect Objectivity
Standards of Internal Auditing have set the minimum of how to deal with cases in which the objectivity of internal auditors are affected. Standard No. 1130, which is related to impairment to independence or objectivity, points out that the details of the impairment must be disclosed to appropriate parties. The nature of the disclosure will depend upon the impairment. On the other hand, risks that affect the objectivity can be dealt with through the following proposed ways:
- Establishing procedures for disclosure and for dealing with any cases in which the objectivity of internal auditors is affected.
- Publishing a code of ethics for internal auditing with stressing the importance of internal auditors’ objectivity.
- Following a rotation method when performing repeated auditing tasks.
- Discussing the risks that may affect the objectivity of internal auditors during the planning of an auditing task.
- Adopting methods of samples definition and selection so that the samples selected by the auditing managers are reviewed.
- Creating supervisory levels during the performance of auditing tasks and depending on a team rather than on individuals.
- Constant training and raising awareness in the area of internal auditors’ objectivity.
- Developing a policy for accepting gifts and identifying standards for such acceptance.
Eventually, risks that affect the objectivity of internal auditors have a great impact on the effectiveness and results of internal auditing. Thus, such risks must be seriously dealt with. Chief Audit Executive must play a major role in periodically evaluating such risks and developing ways of reporting and addressing them if they occurred.
Independence and Objectivity: A Framework For Research opportunities in Internal Auditing https://na.theiia.org/iiarf/Public%20Documents/Chapter%207%20Independence%20and%20Objectivity%20A%20Framework
Suleiman Al-Shouha Internal Auditor in international organization