Independence and

Objectivity

Attribute Standard 1100

Independence and Objectivity
Standard 1100 deals with Independence and
Objectivity.
Standard 1100 – Independence and Objectivity
The internal audit activity must be independent, and internal
auditors must be objective in performing their work.
Interpretation:
Independence is the freedom from conditions that threaten
the ability of the internal audit activity to carry out internal
audit responsibilities in an unbiased manner. To achieve
the degree of independence necessary to effectively carry out
the responsibilities of the internal audit activity, the chief audit
executive has direct and unrestricted access to senior
management and the board. This can be achieved through a
dual-reporting relationship. Threats to independence must be
managed at the individual auditor, engagement, functional, and
organizational levels.
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 others.
Threats to objectivity must be managed at the individual
auditor, engagement, functional, and organizational
levels.
From the Charter
The chief audit executive will ensure that the internal audit
activity remains free from all conditions that threaten the
ability of internal auditors to carry out their responsibilities in
an unbiased manner, including matters of audit selection,
scope, procedures, frequency, timing, and report content. If
the chief audit executive determines that independence or
objectivity may be impaired in fact or appearance, the
details of impairment will be disclosed to appropriate
parties.
Internal auditors will maintain an unbiased mental attitude
that allows them to perform engagements objectively and in
such a manner that they believe in their work product, that
no quality compromises are made, and that they do not
Organizational Independence and
Individual Objectivity
The IAA must maintain organizational
independence and individual internal auditors
need to maintain their own individual
objectivity.
Organizational Independence
Independence is achieved largely through the
organizational status of the IAA.

The independence of the IAA is enhanced if it

reports directly to the board of directors (often
through the audit committee).

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Support from the Board
The Charter should
• List what the Board should do to help the
IAA fulfill its duties, and
• Access that the CAE will have to the board,
and
• Authority from the Board
From the Charter: To establish, maintain, and assure that Company
X’s internal audit activity has sufficient authority to fulfill its duties, the
board will:
• Approve the internal audit activity’s charter.
• Approve the risk-based internal audit plan.
• Approve the internal audit activity’s budget and resource plan.
• Receive communications from the chief audit executive on the
internal audit activity’s performance relative to its plan and other
matters.
• Approve decisions regarding the appointment and removal of the
chief audit executive.
• Approve the remuneration of the chief audit executive.
• Make appropriate inquiries of management and the chief audit
executive to determine whether there is inappropriate scope or
The chief audit executive will have unrestricted access to, and
communicate and interact directly with, the board, including in
private meetings without management present.
The board authorizes the internal audit activity to:
• Have full, free, and unrestricted access to all functions,
records, property, and personnel pertinent to carrying out any
engagement, subject to accountability for confidentiality and
safeguarding of records and information.
• Allocate resources, set frequencies, select subjects,
determine scopes of work, apply techniques required to
accomplish audit objectives, and issue reports.
• Obtain assistance from the necessary personnel of Company
X, as well as other specialized services from within or outside
Company X, in order to complete the engagement.
Dual Reporting Lines
To assist in the independence and objectivity of the
IAA, there should be dual reporting lines.
• Functional Reporting is connected to the
engagements and their results. The CAE reports
functionally to the board.
• Administrative Reporting is the reporting
relationship within the management structure that
facilitates the IIA’s day-to-day operations. The
CAE reports administratively to upper
management (CEO).
Practice Advisory 1110-1
1. Support from senior management and the board
assists the internal audit activity in gaining the
cooperation of engagement clients and performing
their work free from interference.
2. The chief audit executive (CAE), reporting
functionally to the board and administratively to
the organization’s chief executive officer, facilitates
organizational independence. At a minimum the CAE
needs to report to an individual in the organization
with sufficient authority to promote independence and
to ensure broad audit coverage, adequate
consideration of engagement communications, and
appropriate action on engagement recommendations.
Functional Reporting
Functional reporting is the ultimate source of
independence and authority for the IAA.
Standard 1110 – Organizational Independence
The chief audit executive must report to a level
within the organization that allows the internal audit
activity to fulfill its responsibilities. The chief audit
executive must confirm to the board, at least annually,
the organizational independence of the internal audit
activity.
Standard 1110 - Interpretation
Organizational independence is effectively achieved when the chief
audit executive reports functionally to the board. Examples of
functional reporting to the board involve the board:
• Approving the internal audit charter;
• Approving the risk based internal audit plan;
• Approving the internal audit budget and resource plan;
• Receiving communications from the chief audit executive on the
internal audit activity’s performance relative to its plan and other
matters;
• Approving decisions regarding the appointment and removal of the
chief audit executive;
• Approving the remuneration of the chief audit executive; and
• Making appropriate inquiries of management and the chief audit
executive to determine whether there are inappropriate scope or
1110.A1 – The internal audit activity must be free from
interference in determining the scope of internal
auditing, performing work, and communicating results.
The chief audit executive must disclose such
interference to the board and discuss the implications.
Administrative Reporting
Administrative reporting is the reporting relationship
within the organization’s management structure that
facilitates the day-to-day operation of the IAA.
4. Administrative reporting is the reporting relationship
within the organization’s management structure that
facilitates the day-to-day operations of the internal
audit activity. Administrative reporting typically
includes:
• Budgeting and management accounting.
• Human resource administration, including
personnel evaluations and compensation.
• Internal communications and information flows.
• Administration of the internal audit activity’s
policies and procedures.
Individual Objectivity
Individual Objectivity
Standard 1120 addresses Individual Objectivity.

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Standard 1120 – Individual Objectivity
Internal auditors must have an impartial, unbiased attitude
and avoid any conflict of interest.
Standard 1120 - Interpretation:
Conflict of interest is a situation in which an internal auditor,
who is in a position of trust, has a competing professional or
personal interest. Such competing interests can make it
difficult to fulfill his or her duties impartially. A conflict of
interest exists even if no unethical or improper act results. A
conflict of interest can create an appearance of impropriety
that can undermine confidence in the internal auditor, the
internal audit activity, and the profession. A conflict of interest
could impair an individual’s ability to perform his or her duties
Practice Advisory 1120-1
1. Individual objectivity means the internal auditors perform
engagements in such a manner that they have an honest
belief in their work product and that no significant quality
compromises are made. Internal auditors are not to be placed
in situations that could impair their ability to make objective
professional judgments.
Impairments to Independence
or Objectivity
Standard 1130 addresses Impairments to
Independence or Objectivity.

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Standard 1130 – Impairment to Independence or
Objectivity
If independence or objectivity is impaired in fact or
appearance, the details of the impairment must be
disclosed to appropriate parties. The nature of the
disclosure will depend upon the impairment.
Interpretation 1130
Impairment to organizational independence and
individual objectivity may include, but is not limited to,
personal conflict of interest, scope limitations,
restrictions on access to records, personnel, and
properties, and resource limitations, such as funding.
The determination of appropriate parties to which the
details of an impairment to independence or objectivity
must be disclosed is dependent upon the expectations
of the internal audit activity’s and the chief audit
executive’s responsibilities to senior management and
the board as described in the internal audit charter, as
well as the nature of the impairment.
Common Impairments
1. A personal conflict of interest.
2. A scope limitation, including a restriction of access to
records, personnel, or properties.
3. Resource limitation, which includes funding limitations.
4. Situations where the auditor is assessing operations
for which they were previously responsible.
5. Assurance engagements for functions over which the
CAE has previously had responsibility.
6. Consulting engagements in areas where assurance
engagements are also performed.
1. Conflict of Interest
Conflicts are a common cause of the
impairment of objectivity for an internal
auditor.
Standard 1120 - Interpretation:
Conflict of interest is a situation in which an internal
auditor, who is in a position of trust, has a competing
professional or personal interest. Such competing
interests can make it difficult to fulfill his or her duties
impartially. A conflict of interest exists even if no
unethical or improper act results. A conflict of interest
can create an appearance of impropriety that can
undermine confidence in the internal auditor, the
internal audit activity, and the profession. A conflict of
interest could impair an individual’s ability to perform his
or her duties and responsibilities objectively.
Addressing Conflicts of Interest
An auditor with a conflict of interest in an
assurance engagement should be
removed.

Any conflicts of interest in a consulting

engagement should be disclosed to the
client.
2. Scope Limitation
A scope limitation is a restriction on the
engagement that prevents accomplishing the
objectives and plans.
2. A scope limitation is a restriction placed on the internal audit activity
that precludes the activity from accomplishing its objectives and
plans. Among other things, a scope limitation may restrict the:
• Scope defined in the internal audit charter.
• Internal audit activity’s access to records, personnel, and physical
properties relevant to the performance of engagements.
• Approved engagement work schedule.
• Performance of necessary engagement procedures.
• Approved staffing plan and financial budget.
3. A scope limitation, along with its potential effect, needs to be
communicated, preferably in writing, to the board. The CAE needs to
consider whether it is appropriate to inform the board regarding scope
limitations that were previously communicated to and accepted by the
board. This may be necessary particularly when there have been
organization, board, senior management, or other changes.
3. Resource Limitations
Without sufficient resources and funding, the
IAA may not be able to operate independently
and objectively.
4. Assessing Previous
Areas of Responsibility
Objectivity is assumed to be impaired if an
auditor performs an assurance review of
any activity over which he or she had
responsibility within the past one year.
Objectivity is also impaired when auditors are
auditing an area for which they will have
future responsibility within one year after
the engagement.
5. Previous Responsibility
in Non-Audit Functions
It is possible that management could ask an
internal auditor to assume responsibility for
a part of operations that could be subject to
periodic internal auditing assessments.
Internal auditors should not accept such
assignments, but it is possible that
management may insist.
Non-Audit Function Engagements
The CAE could minimize the impairment to
objectivity by using a third party to complete
the audit of that area.
PA 1130.A2-1 Internal Audit’s Responsibility for Other (Non-audit)
Functions
1. Internal auditors are not to accept responsibility for non-audit
functions or duties that are subject to periodic internal audit
assessments. If they have this responsibility, then they are not
functioning as internal auditors.
2. When the internal audit activity, chief audit executive (CAE), or
individual internal auditor is responsible for, or management is
considering assigning, an operational responsibility that the internal
audit activity might audit, the internal auditor’s independence and
objectivity may be impaired. At a minimum, the CAE needs to
consider the following factors in assessing the impact on
independence and objectivity:
• Requirements of the Code of Ethics and the Standards.
• Expectations of stakeholders that may include the shareholders,
board of directors, management, legislative bodies, public entities,
PA 1130.A2-1 Internal Audit’s Responsibility for Other (Non-
audit) Functions (cont.)
• Allowances and/or restrictions contained in the internal audit
charter.
• Disclosures required by the Standards.
• Audit coverage of the activities or responsibilities undertaken by
the internal auditor.
• Significance of the operational function to the organization (in
terms of revenue, expenses, reputation, and influence).
• Length or duration of the assignment and scope of responsibility.
• Adequacy of separation of duties.
• Whether there is any history or other evidence that the internal
auditor’s objectivity may be at risk.
3. If the internal audit charter contains specific restrictions or
limiting language regarding the assignment of non-audit
functions to the internal auditor, then disclosure and
discussion with management of such restrictions is
necessary. If management insists on such an assignment,
then disclosure and discussion of this matter with the board is
necessary. If the internal audit charter is silent on this matter,
the guidance noted in the points below are to be considered.
All the points noted below are subordinate to the language of
the internal audit charter.
6. Consulting Services
Internal auditors may provide consulting services to
areas over which they had previous
responsibility, but the auditors must still act in an
independent and objective manner.
Any potential impairment to their independence or
objectivity must be disclosed to the engagement
client before the engagement is accepted.

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Assurance Services in
Previous Consulting Areas
It is possible to provide assurance services in
areas in which the internal auditor previously
performed consulting engagements.
Standard 1130.A3 – The internal audit activity may
provide assurance services where it had previously
performed consulting services, provided the nature of the
consulting did not impair objectivity and provided
individual objectivity is managed when assigning
resources to the engagement.
Standard 1130.C1 – Internal auditors may provide
consulting services relating to operations for which they
had previous responsibilities.
Standard 1130.C2 – If internal auditors have potential
impairments to independence or objectivity relating to
proposed consulting services, disclosure must be made to
the engagement client prior to accepting the engagement.
Perceived Impairment
Objectivity must exist in both fact and
appearance.

This means that internal auditors must avoid

even the appearance of impairment.
CAE Disclosure to the Board
The Charter sets out two responsibilities that the CAE
has in reporting independence- and objectivity-related
issues to the board:
• The CAE will confirm at least annually to the board
that the IAA is organizationally independent. The
CAE will need to make certain that the IAA maintains
its organizational independence at all times.
• The CAE will disclose to the board any interference
with the IAA determining the scope of work,
performing the work, or communicating the results.
Policies to Promote Objectivity
Job assignments should minimize potential
conflicts of interests.
Jobs should be periodically rotated so that
relationships do not develop between the
auditor and the auditee that might impair
the auditor’s judgment.
A strong QAIP will help ensure that
organizational independence and
objectivity are part of the culture of the IAA.
Practice Advisory 1120-1
2. Individual objectivity involves the chief audit executive (CAE)
organizing staff assignments that prevent potential and actual
conflict of interest and bias, periodically obtaining information
from the internal audit staff concerning potential conflict of
interest and bias, and, when practicable, rotating internal
audit staff assignments periodically.
3. Review of internal audit work results before the related
engagement communications are released assists in
providing reasonable assurance that the work was performed
objectively.