S2: Independence And Objectivity Flashcards
How often must the CAE confirm to the board the organizational independence of the internal audit activity?
Cae must report the activity annually.
How does the CAE report to the Board and to senior management?
The CAE must report functionally (regarding the audit function) to the Board and administratively (involving audit work) to senior management.
What authority does the CAE and internal audit activity have?
They have unrestricted access to report sensitive matters to the highest level of governance in the organization.
Does the CAE have operational responsibilities beyond the internal audit activity?
No. If there are other operational responsibilities such as risk management or compliance, then independence concerns are discussed. Safeguards are placed to limit impairments to independence and objectivity.
What happens when independence or objectivity is impaired?
If independence and objectivity are impaired in appearance or fact, the details of the impairment must be disclosed to the appropriate parties.
What are some examples of impairment of independence and objectivity?
- Personal conflict of interest
- Scope limitation
- Restrictions on access to records, personnel, and properties.
- Resource limitations.
- Assurance services provided within a period after an internal audit consulting engagement.
Can the internal audit activity provide assurance services where it precariously performed consulting services?
Yes provided that the nature of the consulting activity did not impair objectivity.
What is conflict of interest?
A situation in which an internal auditor has a competing professional or personal interest.
Can an internal auditor provide assurance services for an activity where they were previously in or in charge of?
Objectivity is impaired if an internal auditor provides assurance services for an activity for which they had responsibility within the previous year.
How often must the CAE meet privately (without senior management present) to discuss matters and issues?
The CAE and Board must meet annually to talk about matters, issues, and thr audit functions purpose, Authority, and responsibilities (PAR).
What are independence and objectivity as they pertain to audit activity?
The internal audit activity must be independent, and internal auditors must be objective in performing their work.
What is independence in appearance?
The absence of circumstances that would cause a third party to conclude that the integrity, objectivity, or professional skepticism of the audit function has been compromised. (Does there look like a conflict of interest?)
What is independence of mind?
State of mind that permits the execution of an engagement without being affected by influences that compromise professional judgment. (Beijg able to be objective and unbiased)
What are examples of organizational independence impairments?
- The CAE has broader functional responsibility than internal audit and executes an audit of a functional area that is also under the CAE’s oversight.
- The CAE’s supervisor has broader responsibility than internal audit, and the CAE executes an audit within their supervisor’s functional responsibility.
- The CAE does not have direct communication with the Board.
- The budget is reduced to the point that internal audit cannot fulfill its responsibilities as outlined in the audit charter.
When must a party outside of the internal audit activity oversee assurance engagements?
Assurance engagements for functions over which the CAE has responsibility must be overseen by a party outside the internal audit activity.
