Independence and Objectivity Are Not the Same Thing
October 30, 2013
After taking the opportunity with my last blog to focus on acquiring and retaining internal audit talent, I return in this blog with the final installment in a three-part series on the core attributes of an internal auditor. In each of these blogs, I have examined some of our attribute standards that we all proactively abide by.
While many, including The IIA, have made numerous efforts to distinguish between the terms, there remains a lot of confusion around the words "independence" and "objectivity" as it relates to a practicing internal auditor. These words are not synonymous, nor are they interchangeable. It is possible for someone to be independent but not objective, and it is equally possible for someone to be objective without being independent.
I often hear people say that internal auditors should be independent. This can be misleading. Internal auditors are not independent of the organizations they serve, but the internal audit activity should be organizationally independent of the areas it must audit. While not necessarily personally independent, internal auditors should nonetheless always strive to be fully objective in carrying out their work. That's the essence of Attribute Standard 1100: Independence and Objectivity, and that's the focus of this blog entry.
Standard 1100 states: "The internal audit activity must be independent and internal auditors must be objective in performing their work."
Employee or contractor, either way, internal auditors depend on the companies or institutions that pay them. Dependence, however, does not preclude objectivity.
Independence, in this case, refers to the freedom to conduct audit activities in an unbiased manner, and how important it is for chief audit executives to have direct and unrestricted access to senior management and the board. Factors affecting independence are primarily structural and pertain to how high in the organization the internal audit function reports.
Objectivity is an unbiased mental attitude that allows internal auditors to go into an engagement with no preconceived notion of what they are going to find, and to perform their work without compromise. Attribute Standard 1120: Individual Objectivity covers this well by stating, "Internal auditors must have an impartial, unbiased attitude and avoid any conflict of interest."
Factors affecting objectivity are more varied. They include social pressure, economic interests, personal relationships, racial and gender bias, familiarity, cognitive bias, self-review, and intimidation, among other factors.
One might think that the biggest challenge for auditors in meeting these standards would be overcoming any built-in bias that comes from dependency. In my career, I've found that the opposite is often true. Too often, internal auditors go into an engagement assuming that management has something to hide.
Granted "management" in this case would be the operational managers within the area being audited, not senior managers. But this negative bias is doubly non-productive because it can not only unfairly skew recommendations, but also break relationship fences that may be hard to mend later. And as I've said before, you can't afford to have too many broken fences.
Objectivity is fundamental to what internal auditors do — so much so that it is also one of four key principles in The IIA's Code of Ethics (PDF).
The IIA has developed a Practice Guide on independence and objectivity that delves into these areas far deeper than this space allows. I highly recommend giving it a read if you haven't looked at it in a while.
How do you preserve independence and promote objectivity? As always, I welcome your thoughts.