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Audit Objectivity: Definition & Impairments

Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and is currently working on his PhD in Higher Education Administration.

Two characteristics are often cited as the most important for auditors: independence and objectivity. In this lesson, we'll define objectivity, discuss why it is so critical, and give examples of how it might be jeopardized.

What is Objectivity?

For auditors, objectivity is one of two critical characteristics. Any certification exam related to auditing and all professional development continues to emphasize that an auditor must be objective in their work. Since objectivity is so important, let's make sure we understand what it means.

The Institute of Internal Auditors (IIA), the international association for auditors and the author of the important auditing standards, defines objectivity as 'a balanced assessment of all the relevant circumstances…not unduly influenced by auditors' own interest or by others' in forming judgments.'

Basically, per the IIA, objectivity means that an auditor does their work and makes their judgments based on an unbiased look at circumstances and only based on the facts. As soon as an auditor considers how their findings or opinions might impact them personally, or other people involved in the audit, objectivity is jeopardized. Below are a few examples of how that might happen.

Situations that might Impair Objectivity

While there are all kinds of situations that might decrease the objectivity of an auditor, there are a few common situations that address the most significant concerns with objectivity. Because working as an auditor is often a stop during a career path, the work done before and after someone is an auditor needs to be closely considered. It's important to remember that a lack of objectivity does not mean that an auditor is being dishonest or malicious, it just means that something, other than the relative circumstances and evidence, might impact their decisions.

Job-Hunting

This first example is perhaps the most common, and obvious. Often, internal auditors work for 3-5 years before finding another position in their organization. This is a good thing - audit is a great training opportunity for future managers.

But, if an auditor wants to go work as the controller of a subsidiary, then they need to make sure that none of the work they do that has a potential hiring manager as a client is compromised because they want to earn 'points' with that manager. It's not hard to see how wanting another job can quickly turn into the 'slippery slope' of a job-for-clean-audit trade.

Prior Work

The reverse situation is also true. Sometimes, auditors are hired from other departments. For example, an accounts payable clerk may be hired as an internal auditor. Again, this is good because they bring a solid understanding of business processes.

But, if they are asked to audit accounts payable, where they might still have friends and where they might be auditing their own past work, will they be objective? Will an auditor want to say they didn't follow policy or that their friends made mistakes? Just because someone previously worked in a department doesn't automatically mean they can't be objective or adequately audit their own work, but, the possibility of risk to objectivity should be considered.

Temporary Auditors

Another situation where objectivity may be difficult to ensure is when temporary help from subject-matter experts is used during audit engagements. This is like when an auditor has prior work experience in a department, since someone from that department - or at least familiar with it - is helping with the audit.

Assistance from someone in, or close to, an area being audited involves a potential trade-off between expertise and objectivity. While someone may bring expertise and knowledge, they also bring relationships - and thus, potentially loyalty. Again, it is important to note, relationships and knowledge themselves do not automatically decrease objectivity, but they do increase the need to make sure objectivity is used in the audit.

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