Upon discovering a potential conflict of interest, the most appropriate action for the internal auditor is to inform the audit supervisor. This ensures that the issue is properly addressed and investigated according to the organization's policies and procedures. The audit supervisor can then decide on the appropriate course of action, including whether further investigation is warranted. Reference: = IIA Standard 2440 - Disseminating Results and IIA Standard 2600 - Resolution of Senior Management's Acceptance of Risks.