Internal Auditor Objectivity

Download or read book Internal Auditor Objectivity written by Sunita Ahlawat and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The internal audit (IA) function is evolving from its traditional oversight function to one that includes a broader advice and consultation role. On one hand, internal auditors are becoming more involved in a wider spectrum of activities to add value to their organizations. On the other hand, economic pressures have forced many companies to consider outsourcing as an alternative. While the internal audit function is changing, accounting firms are expanding the the types of services they offer to clients. With this expansion, however, comes a concern regarding the potentail lack of objectivity for both internal and external auditors. This exploratory study examines whether outsourcing of the internal audit function is susceptible to client advocacy vis-a-vis in-house auditing, which itself may be sensitive to an employer advocacy. Advocacy implies that an auditor will be partial to its client's interest, especially if these interests are specifically known. The study further examines whether advocacy is mitigated by the experience of internal auditors, and whether their judgments are influenced more by ethical or by economical concerns.For this research, sixty-six practicing members of the Institute of Internal Auditing completed a case study involving a corporate acqusition scenario. Of the 66 participants, 35 were from corporations (in-house), while the remaining 31 were from the Big 5 accounting firms (outsource). Advocacy was manipulated by asking participants to assume the role of internal auditor for either the buyer or the seller of a target division. Results indicate that significant advocacy existed in the judgments of both in-house and outsource auditors. However, the extent of advocacy was less severe in the case of outsource auditors. This is understandable since outsource auditors considered the threat of malpractice litigation to be the most important factor in making IA judgments, while the in-house auditors considered the employer's best interest to be most important. The participants' experience and ethical/economical inclination were not significant factors. Also, regardless of whether participants themselves made ethical or economical choices, they seemed to believe that most people, in general, are motivated by economic rather than ethical considerations.