TIAPS Module 1 Audit and Assurance workbook

Although they are related, the principles of independence and objectivity as defined by The
IIA are distinct. They also differ in detail from the definitions used by the International Ethics
Standards Board for Accountants (IESBA) and others.
In the IPPF, Standard 1100 – Independence and Objectivity makes clear an important
distinction:
The internal audit activity must be independent, and internal auditors must be objective
in performing their work. 22
Independence is a feature of the internal audit function (referred to as the “internal audit
activity” in the IPPF). Objectivity, on the other hand, is a facet of auditors. Standard 1100
provides the following interpretations:
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. 23
To establish organizational independence, the head of the internal audit function (the chief
audit executive) “must report to a level within the organization that allows the internal audit
activity to fulfil its responsibilities.” The structures of public entities, including reporting lines
for the head of the internal audit function, may be defined by legislation or policy. Reference
to a “dual-reporting relationship” in the Standards alludes to a desirable state in which the
head of internal audit reports functionally to (i.e., is accountable to and overseen by) the
governing body, either directly or via an audit committee. Functional reporting involves a
substantive relationship in which the governing body is the de facto line manager of the head
of internal audit with responsibility for appraising performance as well as hiring and firing.
The governing body should approve the internal audit charter, the audit plan, and budget,
and receive and consider reports from the head of internal audit. This is in addition to the
head of internal audit’s administrative reporting relationship with a member of senior
management, ideally the CEO, for routine matters. The head of internal audit should provide
reports to both senior management and the governing body regarding significant findings
and insights on governance, risk management, and internal control.
22
The International Professional Practice Framework, The Institute of Internal Auditors, 2016
23
The International Professional Practice Framework, The Institute of Internal Auditors, 2016
27