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Mind of Jacka: Objectivity and Independence

Blogs Mike Jacka, CIA, CPA, CPCU, CLU Apr 27, 2023

Notice anything different? Did the title of this post seem a little off, hurt a little, set your teeth on edge, hit a nerve? If so, it’s because we are not used to seeing these terms in this order. For some reason, we always put independence first. “Independence and objectivity” is a phrase that rolls liltingly off our tongues. 

And it has done so for so long that we may have forgotten that there is a distinction between them. However, recent events have caused many internal auditors to take another look at what they mean.

Or, at least, it should have.

Unless you’ve been hiding under a backlog of overdue audit reports, you’ve heard that The IIA is proposing significant change to the International Professional Practices Framework (IPPF). Note that one of those changes is replacing the name IPPF with the Global Internal Audit Standards. To make it easier, I’ll call them “IPPF” and “the new Standards” throughout the remaining paragraphs. That work for everyone? Good. Keep moving.

There is a lot of debate going on about some of these changes. And I am smart enough to not even dip my toe into imbroglios regarding things such as the disappearance of “risk-based,” how internal audit can “force” the board to do anything, and the addition of words like “advice” or “success.” I’ve got my own opinions (surprise, surprise!), but this ain’t the time.

But, until The IIA’s recent presentation, What You Need to Know About the Proposed Changes to the Standards, I didn’t know about one of the more interesting, and I believe laudable, changes. I think it will make us clarify our thinking about objectivity and independence.

(Note that the following represents my interpretation of these changes. Meaning there’s a good chance they could be wrong. Feel free to comment and correct.)

The term “independence” has been, depending on your opinion, moved, repositioned, or dropped. The IPPF had independence in the forefront of the definition of internal audit: “an independent, objective assurance and consulting activity.” (Note, again, how the phrase just trips off the tongue.)

In the new Standards, the purpose and definition are rolled into the first of the five domains that make up the Standards. That domain is “The Purpose of Internal Audit” and states “Internal auditing enhances the organization’s success by providing the board and management with objective assurance and advice.”

Nary an independence or independent to be found.

Underneath that domain are two sections: how internal audit strengthens the organization (no independence there) and when internal audit is most effective. In the latter section, in the second bullet point, independence finally raises its glorious head with the statement: “The internal audit function is independently positioned with direct accountability to the board.”

And that is why some people are losing their collective decorum. There is a hue and cry that the concept of independence has been relegated to a lesser position. I get it. We wield the twin swords of independence and objectivity in many of our battles. And “independent” seems to always come first. Heck, it is listed before “objectivity” in the old definition: “an independent, objective … activity.” How can it suddenly disappear like that?

As I watched the presentation and gained an understanding of what I thought was going on, I had my minor epiphany. (Don’t worry, the doctor has me on the appropriate medications.)

Independence may be one of the more misunderstood words we indiscriminately use in talking about how we get things done. Far too often, independence, in internal auditors’ minds, is confused with objectivity. (Again, probably because they always show up as an inseparable pair.)

Let’s get this clear. (And the following comes from the new Standards.) Objectivity is about a mindset, “An unbiased mental attitude that allows internal auditors to make professional judgments, fulfill their responsibilities, and achieve the Purpose of Internal Auditing without compromise.” Independence is about how the work gets done, the ability to do our job with no unnecessary restrictions. “The freedom from conditions that impair the ability of the internal audit function to carry out internal audit responsibilities in an unbiased manner.”

Objectivity is the mindset for doing work; independence is how the work gets done.

I’ve had far too many conversations with far too many internal auditors who said they couldn’t do this or that because it would impair their independence. And they were wrong. What they meant was that it might impair their objectivity. And, to be honest, in most of those situations they were wrong. But it had nothing to do with independence. (And there is a whole other discussion to be had about how the people screaming about independence didn’t really have true independence in their own operations.)

The number of internal auditors who incorrectly wield the Excalibur of Independence is a multitude that needs to be fed the basics of internal audit 101. And, again, I stand by the fact that part of the reason is that, by giving it the same weight as objectivity, it all blurs in our minds.

And here comes that epiphany I promised you…

Independence is a subset of objectivity. Yes, independence is crucial to the work we do. But it is only one of the aspects of objectivity we must consider. An important one, of course, but one of many. In other words, part of our ability to maintain an unbiased mental attitude includes being independent of anything that impairs our ability to get things done.

You can have independence without objectivity, but you cannot have objectivity without independence.

Note that, while people shout about the perceived demotion of the term “independence” in the new Standards, it makes a starring appearance elsewhere. In the third domain: Governing the Internal Audit Function, Principle No. 7 is titled “Positioned Independently” and states “The board establishes and protects the internal audit function’s independence.” Standard 7.1 is titled “Organizational Independence” and Standard 7.3 is titled “Safeguards to Independence.”

No, it hasn’t disappeared. It has just been moved to a more relevant position. And, in so doing, it may help us all understand what we are talking about when we talk about the separate concepts of objectivity and independence.

While I have not read many (close to none, to be exact) of the comments regarding this issue, I have a feeling many of them are tied to the misunderstanding that independence is only a part of objectivity. Just as, over the years, I’ve seen comments on social media screaming that this and such can’t be done because it impairs independence, the same arguments are being used in this situation. Again, you might argue that objectivity is impacted, but it has nothing to do with not being given the freedom to get our work done appropriately.

And as I noted at the beginning of this post, it is an opportunity for us to reground ourselves in the real definitions. If you have a problem with the way independence is handled in the new Standards, then definitely provide your comments to The IIA. But make sure you are arguing about the right point. Yes, independence is a cornerstone to how audit gets work done and how it does its job differently than any other department. But it is only a part of what makes up our objectivity, not all of it.

And if I might be allowed to generalize about this topic more broadly, it’s just like all things in life. If we are going to discuss/debate/argue a point, then we need to understand it. Only then can discourse lead to real solutions.

Mike Jacka, CIA, CPA, CPCU, CLU

Mike Jacka is co-founder and chief creative pilot of Flying Pig Audit, Consulting, and Training Services (FPACTS), based in Phoenix.