…The fine balance of independence and objectivity
In the tapestry of corporate governance, the Internal Audit function plays an instrumental role, ensuring transparency, identifying operational inefficiencies, and assuring the effective management of risk. However, the credibility and value of internal auditing hinge largely upon the auditors’ ethical posture, specifically their ability to maintain independence and objectivity. This article explores the paramount importance of ethics in internal auditing and the crucial balance between independence and objectivity.
The Pillars of Ethical Auditing: Independence and Objectivity
Independence and objectivity serve as the twin pillars of ethical auditing. Independence refers to the freedom from conditions that threaten the auditor’s ability to carry out audit responsibilities in an unbiased manner. On the other hand, objectivity is the mental attitude that auditors should maintain while performing audits, not allowing personal feelings or prejudices to influence their judgment.
Preserving Independence
Maintaining independence, both in fact and appearance, is fundamental to the credibility of the Internal Audit function. The International Standards for the Professional Practice of Internal Auditing (Standards) stipulate that the Internal Audit activity must be free from interference in determining the scope of internal auditing, performing work, and communicating results.
However, given that internal auditors are employees of the organization they audit, complete independence can be challenging. It requires meticulous diligence and rigorous corporate governance structures. The reporting lines of the Internal Audit function should be designed to promote independence – typically, internal auditors report functionally to the Board or Audit Committee and administratively to senior management.
Promoting Objectivity
Objectivity demands that auditors perform their work with impartiality, have an unbiased mental attitude, and avoid any conflict of interest. Auditors should refrain from auditing areas where they have had previous operational responsibilities. If such situations are unavoidable, objectivity can be maintained through appropriate disclosure, oversight, and the use of separate, independent reviewers.
Balancing Independence and Objectivity
Maintaining a balance between independence and objectivity can be a tightrope walk. Too much emphasis on independence might lead to a detachment that could impede auditors’ understanding of business operations, while excessive stress on objectivity might lead to over-familiarity and potential bias.
Balancing the two requires auditors to adopt a ‘principled’ approach, consistently applying the Code of Ethics and the Standards. Training, ongoing education, and adherence to a strong ethical culture can further help maintain this balance.
Ethical Leadership: The Role of Chief Audit Executive (CAE)
The CAE plays a crucial role in promoting ethics in internal auditing. By embodying the principles of independence and objectivity, the CAE sets the tone for the entire Internal Audit function. The CAE should actively communicate the importance of these principles, lead by example, and build an ethical culture that permeates the entire organization.
Conclusion: The Ethical Imperative in Internal Auditing
The imperative of ethics in internal auditing cannot be overstated. Independence and objectivity are the bedrock on which the trust in, and value from, internal auditing is built. Balancing these ethical considerations is not just a compliance exercise but the very essence of internal auditing, crucial for its credibility, effectiveness, and ultimate success.
However, maintaining independence and objectivity is not without challenges. It requires strong corporate governance structures, clear reporting lines, a robust ethical culture, and the personal commitment of each auditor. Above all, it demands an unwavering commitment to ethical conduct at all levels of the organization, starting from the CAE.
As internal auditors, we must continuously remind ourselves that we are not merely guardians of compliance, but custodians of trust. Our true value lies not just in the audits we perform, but in the ethical stance we uphold. As we navigate through our professional journey, let us wear our ethical armour with pride, maintaining the delicate balance between independence and objectivity, and thereby uphold the highest standards of our noble profession.
The writer is an independent Internal Audit Advisor, Enterprise Risk Management Consultant, and professional trainer. He is the founder and Chief Operating Officer of Redric Consulting, your trusted partner for comprehensive training and consulting services in the fields of Governance, Risk, and Compliance (GRC). With a proven track record in Internal Audit, Internal Control, Compliance, Fraud Risk Management, and Cybersecurity, Redric Consulting empowers your organization and ensures its success.
You may reach out to Frederick on [email protected]
The writer is the Chief Operating Officer at Redric Consulting
