Which course of action should the auditor take?

While auditing an organization’s credit approval process, an internal auditor learns that the organization has made a large loan to another auditor’s relative.

Which course of action should the auditor take?
A . Proceed with the audit engagement, but do not include the relative’s information.
B . Have the chief audit executive and management determine whether the auditor should continue with the audit engagement.
C . Disclose in the engagement final communication that the relative is a customer.
D . Immediately withdraw from the audit engagement.

View Answer

Answer: B

Explanation:

When faced with a potential conflict of interest, as in the case where an internal auditor learns of a large loan made to another auditor’s relative, the appropriate action is to refer the matter to higher authorities within the organization. Option B, having the chief audit executive and management determine whether the auditor should continue with the audit engagement, ensures that any potential conflict is managed properly and maintains the integrity of the audit process.

Reference: The Institute of Internal Auditors (IIA) – International Standards for the Professional Practice of Internal Auditing.