The situation that would cause the greatest concern regarding impairment of internal audit objectivity is when the internal auditor uses his in-depth knowledge of systems development to assist the audit client in designing a new operational system with robust controls. By participating in the design and implementation of the system, the internal auditor becomes part of the process, which can compromise their ability to independently evaluate the system in future audits. This involvement creates a conflict of interest and impairs the auditor's objectivity.
References:
* The IIA Standards: Standard 1120 - Individual Objectivity: "Internal auditors must have an impartial, unbiased attitude and avoid any conflict of interest."
* IIA Practice Guide: "Independence and Objectivity": Discusses the risks associated with internal auditors performing operational roles that can impair their independence and objectivity.