Question

When an internal auditor has a potential impairment of independence or objectivity relating to a proposed consulting engagement, what action must be taken?

A. The internal auditor must immediately refuse the consulting engagement.
B. The internal auditor must disclose the potential impairment to the engagement client prior to accepting the engagement.
C. The internal auditor need not disclose the potential impairment and may accept the engagement.
D. The internal auditor must not disclose the potential impairment to the chief audit executive.

Answer 1

The internal auditor must disclose the potential impairment of independence or objectivity to the engagement client before accepting a consulting engagement, in line with the standards of auditing that prioritize the credibility of the audit function. Option B is correct.

Step-by-step explanation:

When an internal auditor faces a potential impairment of independence or objectivity relating to a proposed consulting engagement, the correct action to take is to disclose the potential impairment to the engagement client prior to accepting the engagement. This response is advised by professional standards for auditing, such as those from the Institute of Internal Auditors (IIA), which emphasize the importance of maintaining independence and objectivity to ensure the credibility of the audit function.

Thus, the internal auditor must not ignore or hide such impairments but rather bring them to the attention of the client to decide on the best course of action together. This action is critical for preserving the integrity of the audit process and upholding the trust that stakeholders place in the internal audit function.