These meetings should be documented in some way, perhaps by creating a presentation, and a list of attendees. The CAE and more senior members of the staff could provide examples of when independence and objectivity had been or perceived to have been compromised. In this case, the CAE could hold meetings with their staff to review these concepts, discuss why they are important and how to handle them should they arise. The internal audit department may not have a set of policies and procedures in place which define independence and objectivity and why they are an important part of each internal audit staff members job. For example:Īn internal audit department may not have an Internal Audit Charter stating that it attests its independence and objectivity on an annual basis, yet the CAE does discuss this with the Board annually and meeting minutes can be provided as documentation. Internal Audit Departments can also achieve a “Generally Conforms” rating with slightly less than best practice. While this is the ideal all internal audit departments should be targeting, it isn’t that simple in practice. If all the above criteria were met, the assessment would conclude the internal audit department “Generally Conforms” to IIA Standard 1130. Depending on the situation, the CAE may discuss the impairment with the Board. Generally, they are guided to surface their concern to their Audit Manager, who will usually surface it to the CAE to determine if an impairment is real and what action should be taken. Allowing undue influence from someone senior to the auditor to adjust the scope of the audit or results without rationale or appropriate approval.Īs stated previously, most internal audit departments have a policy manual which guides them on the steps they should take if they become aware or concerned about an impairment.Auditing an area where the auditor worked within the previous year (IIA Standard 1130.A1 specifically addresses this and prohibits it).Auditing an area where a close friend or relative is employed.The internal audit’s budget is not enough to fulfill its responsibilities as outlined in the Internal Audit Charter.In a case like this, additional oversight is required). The CAE’s area of responsibility is broader than that of internal audit and they execute an audit in one of those areas (for example, if the CAE is also functioning as the CCO and a CCO audit is conducted.The CAE does not have direct interaction or communication with the Board.Impairments can be broken into two classifications organizational impairments and objectivity impairments. To truly understand independence and objectivity, it is important to take a step back and understand how stakeholders might view actions or conditions as conflicts of interest, scope limitations, restrictions on access to records, personnel and properties, and resource limitations. Many departments review this manual annually and have their staff sign-off on this review. One of the most effective and common methods within the internal audit department is to have a policy manual defining independence and objectivity, stipulating the obligations and requirements of the department staff and how they should handle an impairment or perceived impairment if it arises. Most Internal Audit Charters include a clause stating that the CAE will confirm their independence and objectivity to the Board on an annual basis. This ensures that the CAE and Board have a common understanding of how and to whom perceived or actual impairments will be disclosed, based upon the nature of the perceived or actual impairment. It is applied most effectively when the CAE has discussed the importance of independence and objectivity with the Board and how the standard applies. This Standard requires that the CAE has a clear understanding of independence and objectivity as described in the Code of Ethics and IIA Standards 1100, 1110, 1111, 1112, and 1120. *This excerpt is sourced directly from the IIA Standards website, which is available to the public: Evaluating Against Standard 1130 The nature of the disclosure will depend upon the impairment.* If independence or objectivity is impaired in fact or appearance, the details of the impairment must be disclosed to appropriate parties. While independence and objectivity are covered under IIA Standard 1100, IIA Standard 1110 and IIA Standard 1120, IIA Standard 1130 (1130-1130.C2) delves deeper into what may constitute an impairment to an internal auditors’ independence or objectivity and what needs to occur should this happen. IIA Standard 1130 – Impairment to Independence or Objectivity This article is part of a series explaining the requirements of the Institute of Internal Auditors (“IIA”) International Standards for the Professional Practice of Internal Auditing (“Standards”).
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