A fundamental key to audit success is the reputation for objectivity. That implies independence from activities reviewed. Complete independence is an unattainable goal while practical independence is not only possible but absolutely essential.” Critically evaluate this statement giving examples of how this can be achieved by following the Codes of Ethics as produced for professionally qualified accountants

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nIntroduction

nIn the global resolve to enhance corporate governance, auditors experiences a wide range of opportunities and challenges especially pervasive and complex utilization of technology, a requirement for innovative and ever-changing expertise, and higher rate of globalization and competition (Abbott, Daugherty, Parker and Peters 2016, p.3). Internal auditors are establishing new approaches to meet these challenges. Auditing is the process of reviewing product, project, enterprise, system, organization and person, performed to determine the reliability and validity of information, and to offer an appraisal of the internal control of the system. Both public and private organizations across the globe demands that the auditors must provide high level of accountability (Cook, van Bommel and Turnhout 2016, p. 3). The need for accountability has contributed to higher rate of attention on audit operations as a foundation of governance systems. In this regard, auditors are guided by objectivity, independence and integrity in the audit process (Stewart and Subramaniam 2010, p.5). The paper will critically analyse how objectivity and independence of auditors is key to reputable audit process

nObjectivity is important for any professional individual practicing specialized decision. Moreover, objectivity is the status of mind that has esteem to all deliberations appropriate to the duty but not the others (Tepalagul and Lin 2015, p.9). In other words, objectivity is normally regarded as independence of thoughts. The significance of objectivity is principally apparent in the instance of a practicing accountant conducting an audit as well as other reporting responsibility where expert opinion is expected to influence the truths between the decisions and parties they hold (Cook, van Bommel and Turnhout 2016, p. 3). Therefore, objectivity is a balanced mental attitude that enables internal auditors to achieve engagement in such a way that believe in their product of work and that no eminent compromises are conducted. Objectivity helps an individual auditor maintain ultimate control and accountability (Brody, Haynes and White 2014, p.1). Supervisory review of the exercise work is a control to ensure that test conclusions and results are objective.

nOn the other hand, independence refers to the rights from conditions that impair the capacity of the internal audit operation to conduct internal audit role in an unbiased way (Abbott, Daugherty, Parker and Peters 2016, p.2). Organizational independence is efficiently accomplished when the main audit management reports operationally to the board. The top audit manager should report to a stage within the firm that permits the internal audit operations to accomplish its mandate. Furthermore, individual objectivity in audit process calls for internal auditors to retain unbiased or impartial attitude and evade any form of conflict of interest (Tepalagul and Lin 2015, p.9). In case the objectivity or independence is affected, the particulars of the impairment should be revealed to suitable parties. The extent of the disclosure is dependent on the impairment. The audit process demands that an individual should execute safeguards such as remuneration structure, responsibility, restriction, duties segregation and reporting relationships that control conflict of interests and assist to enhance independence (Brody, Haynes and White 2014, p.7).

nFactors affecting independence of audit process

nThe precise role of internal audit operation changes from company to company depending on factors such as capital structure, type of operation, organizational size and regulatory and legal environment. In some firms, the role of internal auditors is confined to exceptional consulting and assurance project for management (Abbott, Daugherty, Parker and Peters 2016, p.5). In these circumstances, the executive is the only employer of internal audit process and the only factor that derives direct benefit through that process. In particular, organizational status and placement of the internal audit affects the opportunity of internal audit process (Cook, van Bommel and Turnhout 2016, p. 5).for instance, in case the internal audit process exist in in the department of controllers with the chief audit executive (CAE) recording directly to the controller is impossible or difficult. In most cases, internal auditors experience challenges to objectively review the work of peer offices held by the chief financial officer. Most importantly, higher offices greatly affect the possible chances of engagement that can the internal auditor initiates (Tepalagul and Lin 2015, p.11). In addition, top levels of management remain autonomous of the audited entity, which affects the independence of the internal audit.

nThe capacity to accomplish adequate and appropriate independence of internal audit process is affected critically by the organizational or placement status of the operation within the firm (Stewart and Subramaniam 2010, p.1). The administrative position of the internal audit process must be adequate to permit it to achieve its operations as explained by its role within the company. For this reason, the internal audit operation should be positioned to acquire cooperation from the department being audited and unrestricted access to appropriate information (Brody, Haynes and White 2014, p.2). Allowing such access in the committee charters of audit departments is often a good exercise. As part of executive or senior management, essential meetings assist to illustrate supportive and strong top commitment to the internal audit process. Furthermore, records of the audit results should not be exposed to possible suppression and interference by the senior management (Cook, van Bommel and Turnhout 2016, p. 7).

nFactors affecting Objectivity of audit process

nA wide range of factors influences the objectivity of the audit process. Some of these include the self-interest threat, the self-review threat, advocacy and trust threat. The self-interest threats usually affect the objectivity process. For instance, it can occur from an indirect or direct interest in a customer or from a panic of losing a customer (Abbott, Daugherty, Parker and Peters 2016, p.10). Furthermore, the self-review risk affecting the objectivity occurs when there are challenges of performing what is efficiently a self-review. Similarly, auditors experience difficulties in upholding objectivity when performing a self-review in case any judgement or product of a previous non-audit or an audit assignment require to be re-evaluated or challenged in determining the audit conclusions (Brody, Haynes and White 2014, p.7).

nThe threat of advocacy in the audit process is a serious problem to the objectivity of an auditor. For instance, in case the auditor turn out to be an advocate against or for his customers position in any adversarial situation or proceedings, he is likely to introduce the advocacy threat in the process (Tepalagul and Lin 2015, p.12). On occasion that the auditor holds an intensely proactive standpoint on behalf of the client, it may seem to be incompatible with the distinct objectivity that the audit process needs. The threat of trust or familiarity follows when the auditor becomes over-affected by the quality and personalities of the management and directors (Stewart and Subramaniam 2010, p.1). Subsequently, too much trust may force the auditor to lose his/her objectivity as he/she becomes sympathetic to the managements interests. Alternatively, the auditors trust towards the representatives of the management hence use less rigorous process in testing their financial reports (Brody, Haynes and White 2014, p.5).

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nReferences

nAbbott, L.J., Daugherty, B., Parker, S. and Peters, G.F., 2016. Internal audit quality and financial reporting quality: The joint importance of independence and competence. Journal of Accounting Research, 54(1), pp.3-40.

nCook, W., van Bommel, S. and Turnhout, E., 2016. Inside environmental auditing: effectiveness, objectivity, and transparency. Current Opinion in Environmental Sustainability, 18, pp.33-39.

nG. Brody, R., M. Haynes, C. and G. White, C., 2014. The impact of audit reforms on objectivity during the performance of non-audit services. Managerial Auditing Journal, 29(3), pp.222-236.

nStewart, J. and Subramaniam, N., 2010. Internal audit independence and objectivity: emerging research opportunities. Managerial auditing journal, 25(4), pp.328-360.

nTepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.