CPA Exam — AUDPerforming Further Procedures and Obtaining EvidenceHard
When an auditor uses the work of an internal auditor, which of the following factors would least likely influence the external auditor's assessment of the internal auditor's objectivity?
- AThe existence of policies prohibiting internal auditors from auditing areas where they have personal financial interests.
- BThe internal auditor's professional certification.
- CThe extent to which the internal auditor's compensation is tied to the entity's financial performance.
- DThe organizational level to which the internal auditor reports.
Show answer & explanationAnswer & explanation
Correct answer: B. The internal auditor's professional certification.
While professional certification (e.g., CIA) indicates competence, it does not directly speak to objectivity. Objectivity is primarily influenced by factors related to the internal auditor's independence from the activities being audited and freedom from bias. Factors like reporting lines (A), policies on conflicts of interest (C), and compensation structure (D) directly bear on objectivity.
Why the other options are wrong
- A. Policies preventing conflicts of interest directly enhance objectivity.
- C. Tying compensation to financial performance could impair objectivity.
- D. Reporting to a high level (e.g., audit committee) enhances objectivity.
Assessing Internal Auditor Objectivity
External auditors assess internal auditors' objectivity by evaluating their independence from the activities they audit and their freedom from bias.
- Key factors include organizational reporting lines (e.g., to the audit committee).
- Policies on conflicts of interest and restrictions on auditing areas where they have personal involvement are important.
- Compensation schemes should not create pressure to bias results.
Memory trick: Internal Audit: Competence, Objectivity, and Systematic Approach.