Final answer:
The Internal Auditor must uphold the IIA's Code of Ethics by ensuring objectivity, integrity, and professionalism despite the close relationship with the purchasing manager. The auditor should disclose this relationship and consider recusal to maintain the credibility of the audit findings.
Step-by-step explanation:
An Internal Auditor (IA) discovering material inefficiencies in a purchasing function is confronted with a challenging ethical dilemma, especially when the purchasing manager is a close personal connection. The Institute of Internal Auditors (IIA) has a Code of Ethics that aims to guide auditors in handling such situations professionally. The IIA stresses the importance of objectivity, confidentiality, integrity, and competency. This implies that the internal auditor must overcome personal biases that could compromise their ability to report accurately on the findings.
According to the IIA's Code of Ethics, auditors should exhibit the highest level of professional objectivity in gathering, evaluating, and communicating information about the activity or process being examined. They should make a balanced assessment of all the relevant circumstances and should not be unduly influenced by their own interests or by others in forming judgments. Given the auditor's relationship with the purchasing manager, conflict of interest may arise that could jeopardize the objectivity of the audit.
To adhere to the Code of Ethics, the internal auditor should disclose the relationship with the purchasing manager to the appropriate parties, such as their supervisor or the audit committee. They should also recuse themselves from the auditing activities related to the purchasing function if necessary, allowing for an independent third party to evaluate the situation without bias. Ensuring that action is taken on the inefficiencies is crucial, but this must be done while upholding the integrity of the audit process and the auditor's professional ethics.