Objectivity Threats: Would it Jeopardise Malaysian Internal Auditors’ Risk Judgment Quality?

Abstract

In the realm of internal auditing, the rise of Risk-Based Internal Auditing has heightened the demand for auditors to excel in risk assessment. Failing in this role not only endangers audits but also exposes companies to significant losses and reputational harm. Internal auditors entrusted with critical decisions grapple with objectivity challenges that impede their ability to assess a company's risks accurately. This study investigates objectivity challenges in Malaysian internal auditing and their impact on risk assessment. Employing experimental tasks of varying complexity, it reveals that all nine objectivity threats outlined in the "International Standards for Professional Practices of Internal Auditing (IPPF): Practice Guide on Independence and Objectivity" are prevalent in Malaysia. These threats negatively affect risk assessment, regardless of task complexity. Prominent objectivity threats include social pressure, familiarity, and intimidation. Crucially, these threats have a more significant impact on risk assessment during simpler tasks, especially when auditors assess familiar, less intricate areas. These highlight the urgent need for internal auditors to manage objectivity effectively, strengthening their role as impartial, dependable risk assessors.