[Fundamental Audit Concepts and Principles] How are auditors expected to handle conflicts of interest during an audit?

Auditors must maintain independence and impartiality, which are fundamental principles of auditing. When a conflict of interest arises, the auditor has an ethical and professional obligation to disclose it to the relevant parties (e.g., the audit program manager and the auditee). To preserve the integrity of the audit, the auditor should then be removed from the portion of the audit where the conflict exists. This ensures that audit conclusions are based on objective evidence and are free from bias.

B. By excluding the affected area from the audit scope: The audit scope is based on objectives and risks, not the auditor's personal conflicts.

C. By assigning an external auditor to handle the conflict: This is a potential solution for the audit program manager, but the auditor's primary responsibility is disclosure and recusal.

D. By ignoring conflicts to maintain impartiality: Ignoring a conflict is a direct violation of impartiality and the principle of independence.

1. ISO 19011:2018, Guidelines for auditing management systems, Clause 4, Principles of auditing. The principle of 'Independence' is defined as "the basis for the impartiality of the audit and objectivity of the audit conclusions."

2. The Institute of Internal Auditors (IIA), International Standards for the Professional Practice of Internal Auditing, Standard 1120 – Individual Objectivity. This standard requires internal auditors to refrain from assessing specific operations for which they were previously responsible and to disclose any impairment to independence or objectivity.