Independence & Objectivity of Internal Auditors

1. Independence & Objectivity of Internal Auditors ICPAK – Annual Internal Audit Seminar Mombasa continental hotel 20th-22nd august, 2014 Jack k. wasonga

2. Agenda • Purpose, Authority & Responsibility • Definition of Independence & Objectivity • Organizational Independence • Individual Independence of Internal Auditor • Individual Objectivity of Internal Auditor • Impairment to Independence/Objectivity • Q & A

3. Independence & Objectivity “Internal Audit………the coolest profession in the world” Tom Peters (IIA 2013 Conference)

4. Purpose, Authority & Responsibility • Internal audit function draws its purpose, authority and responsibility from the Internal Audit Charter (PA – 1000-1). • The charter establishes the IA activity’s position within the organization. • Final approval of the charter resides with the board

5. Definition of Independence & Objectivity • 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. • The audit charter should establish independence of the internal audit activity by the dual reporting relationship to management and the organization’s most senior oversight group.

6. Independence & Objectivity • 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 (1100–IPPF). • The internal auditor occupies a unique position in an organization as he or she is employed by the management. • S/he is expected to review the conduct of management which can create significant tension since the internal auditor’s independence from management is necessary for the auditor to objectively assess management’s action.

7. Organizational & Functional Independence • The CAE must report to a level within the organization that allows the internal audit activity to fulfill its responsibilities (1110-1-PA). • The CAE should report functionally to the Board and administratively to the CEO of the organization. • The CAE should have direct communication with the Board by attending and participating in board meetings that relate to the board’s oversight responsibilities for auditing, financial reporting, organizational governance, and control. • CAE can also have private meeting with the board, at least annually (PA-1111-1).

8. Organizational & Functional Independence • Not Responsible for audit area

9. Individual Independence of Internal Auditor • Internal auditor is independent when he/she renders impartial and unbiased judgment in the conduct of his/her engagement. • Internal Auditor must have an impartial, unbiased attitude and avoid any conflict of interest. • Internal auditor should uphold integrity not be influenced from any corner while performing his/her her engagement.

10. Individual Objectivity on Internal Auditor • Objectivity is the mental attitude which internal auditor should maintain while performing engagement. • Internal auditor should have impartial, un-biased attitude and avoid conflict of interest situations, as that would prejudice his/her ability to perform the duties objectively. • The results of internal audit work should be reviewed before they are released in order to provide a reasonable assurance that the work has been performed objectively. • Internal auditor should not assume any operational responsibility.

11. Objectivity “frame of mind Relies upon the professionalism of the internal auditor”

12. Impairment to Independence/Objectivity • Impairment to organizational independence and individual objectivity may include, but us not limited to, personal conflict of interest, scope limitations, restrictions on access to records, personnel, and properties, and resource limitations, such as funding (PA-1130-1). • Impairment can also be presumed when auditors perform an assurance review of any activity for which they had any authority or responsibility within the past year or a period significant enough to influence their judgment or opinion.

13. Impairment to Independence/Objectivity • Internal auditors should not accept gifts or favors from others such as employees, clients or business associates. • Internal auditors should adopt a policy that endorses their commitment to abiding by the Code of Ethics, avoiding conflicts of interests, disclosing any activity that could result in a possible conflict of interest. • Staff assignment of internal auditors should be rotated periodically whenever it is practicable.

14. Q & A “People who know what they are talking about, needs no PowerPoint” Steve Jobs Thank you for listening