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​Independence and Objectivity: the Department and the Person

Blogs Mike Jacka, CIA, CPA, CPCU, CLU Jul 17, 2020

Last week I took a shot at discussing two cornerstones of our profession — independence and objectivity. The focus of the post was that internal auditors tend to use the words interchangeably, not understanding the important differences in those words as they relate to the profession.

This elicited some interesting comments, as well as some pushback. And, while I still stand by what I had to say, the discussions were good. Any time we are forced to dig deeper into a subject we get a better understanding of that subject.

Sometimes the exploration can be as important as the final conclusions. Thus did it happen to me that, as I constructed some of my responses, I was smacked upside the head by an important aspect of independence and objectivity — one I had known but had apparently forgotten: Independence is about the department; objectivity is about the person.

There is it. That is how simple it is. In fact, you can find it implied in Standard 1100 — Independence and Objectivity. "The internal audit activity must be independent, and internal auditors must be objective." (Emphasis mine.)

The related interpretation continues this delineation. "Independence is the freedom from conditions that threaten the ability of the internal audit activity to carry out internal audit responsibilities in an unbiased manner." "Objectivity is an unbiased mental attitude that allows internal auditors to perform engagements in such a manner that they believe in their work product and that no quality compromises are made." (Again, emphasis mine.)

Now, note the tie that binds. (And, perhaps, part of the cause of all this misunderstanding.) Both independence and objectivity speak to how departments and the people in those departments can combat bias.

In the case of independence, the Standards lay out how the department can best accomplish freedom from conditions that cause bias. The interpretation and the subsequent standards and guidance speak to the need for the department's unrestricted access to senior management and the board. It is a department thing.

In the case of objectivity, the Standards speak to the mindset of the people doing the work. It lays out the need to avoid conflicts of interest and competing interests that might cloud judgement. It is a people thing.

I could go on a lot longer about what the Standards have to say on the subject. (In fact, my original draft went into the code of ethics, the principles, the Standards, and the related implementation guidance. However, none of us really need that kind of internal audit geekiness. Suffice to say this interpretation is supported throughout the International Professional Practice Framework. Don't believe me? Look it up yourself.)

But the fundamental point is that any time there is a discussion about the difference between independence and objectivity — for example, when internal auditors are discussing the impact of bonuses, relationships, consulting, being a customer of the organization, etc. — remember that it all hinges on how the department prevents bias versus how the individual prevents it.

For some of you, this may not have been the most groundbreaking of posts. But, as I noted, it is a fundamental difference that I often forget and spend a lot of time trying to get a handle on until I remember it again. And, based on some of the responses I got, it must be something that others forget or have never quite caught on to.

And I apologize for all the aforementioned geekiness around here lately. But it just seemed the right time to be a geek. And it is a good reminder that any of us can benefit by taking a closer look at the Standards and what they actually say. It reminds me of a tape I recently saw in which someone was asked, "Have you read the transcripts?" To which the individual replied, "No, but I trust what other people tell me."

When all else fails, read the Standards yourself. It couldn't hurt.

Mike Jacka, CIA, CPA, CPCU, CLU

Co-founder and Chief Creative Pilot, Flying Pig Audit, Consulting, and Training Services (FPACTS), based in Phoenix.