Which of the following is an example of an impairment to an internal auditor's independence?

Question

Options

• AAn internal auditor delays reporting material financial statement audit findings until after his
• BFollowing the restructuring of the organization, the internal audit activity now reports functionally
• CA new member of the internal audit activity, who was the accounts payable supervisor for two
• DBelieving there must be errors in a given balance sheet account the internal auditor decides to

• A
  13% (5)
• B
  74% (29)
• C
  5% (2)
• D
  8% (3)

Explanation

Option B describes an organizational independence impairment because IIA Standards require the internal audit activity to report functionally to the board of directors or audit committee - not to management. If restructuring causes internal audit to report functionally to a level of management (e.g., CFO or CEO), the audit function loses the organizational independence needed to objectively oversee those same managers.

Why the distractors are wrong:

• A - Delaying reporting is a performance or timeliness failure, not an independence impairment; it doesn't involve a conflicting relationship or reporting structure.
• C - A former accounts payable supervisor joining internal audit raises an objectivity concern for auditing their prior area (typically requiring a cooling-off period), but the individual's past role does not by itself impair the activity's independence.
• D - Approaching a balance with a predisposition to find errors is an objectivity problem (confirmation bias), not an independence impairment; independence relates to structural relationships, not mental attitude.

Memory tip: Think of Independence = Structure (reporting lines, organizational position) and Objectivity = Mindset (personal bias, conflicts of interest). If a question asks about where audit reports or who has authority over it, think independence - that's Option B's violation.

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