CPA Exam — AUDPerforming Further Procedures and Obtaining EvidenceMedium
An auditor is engaged to examine the financial statements of a private company and is considering whether to use the work of the company's internal audit function. Which of the following factors would LEAST likely influence the external auditor's assessment of the internal auditors' objectivity?
- AThe existence of an audit committee that oversees the internal audit function.
- BThe organizational level to which the internal auditors report.
- CThe internal auditors' technical competence and training.
- DPolicies prohibiting internal auditors from auditing areas where they have personal involvement.
Show answer & explanationAnswer & explanation
Correct answer: C. The internal auditors' technical competence and training.
Technical competence and training relate to the internal auditors' proficiency, not their objectivity. Objectivity refers to the ability to perform work without bias or undue influence. While both are important, competence is distinct from objectivity.
Why the other options are wrong
- A. An independent audit committee's oversight strengthens objectivity by providing a reporting line that bypasses operational management.
- B. Reporting level (e.g., to the audit committee versus directly to management) is a significant indicator of objectivity.
- D. Policies preventing conflicts of interest directly enhance the objectivity of the internal audit function.
Assessing Internal Auditor Objectivity
The external auditor's evaluation of the internal audit function's ability to perform work without bias or undue influence, which is crucial for determining the extent to which the external auditor can rely on their work.
- Objectivity is distinct from competence.
- Factors include reporting lines, independence policies, and oversight.
- Higher objectivity allows for greater reliance by the external auditor.
Memory trick: Objectivity is about being UNBIASED, not just smart.