Before writing the internal audit charter, the chief audit executive (CAE) must consider how the internal audit activity is viewed by the board. The internal audit charter is a formal document that defines the purpose, authority, and responsibility of the internal audit activity. It should align with the expectations and requirements of the board and senior management. Understanding the board's perception and expectations helps in crafting a charter that ensures appropriate support and engagement from key stakeholders, thereby enhancing the effectiveness and alignment of the internal audit function with organizational objectives.
IIA Standard 1000 - Purpose, Authority, and Responsibility.
IIA's Practice Advisory on Developing the Internal Audit Charter.

Rationalization is evident here, as the manager justifies his fraudulent actions by viewing them as compensation for perceived unfair treatment. According to IIA guidance on fraud, rationalization allows individuals to reconcile unethical behavior with their self-concept.

IIA standards require that external quality assessments be conducted at least once every five years by an independent assessor. This ensures adherence to quality standards and strengthens the objectivity of the internal audit function.

Periodic reinforcement of the internal audit activity's code of ethics disclosure practices would encourage the internal auditor to maintain objectivity, even when personal compensation might be affected. The IIA's Code of Ethics emphasizes integrity and objectivity, and regular reinforcement helps auditors adhere to these principles, ensuring that they act impartially and do not allow conflict of interest or undue influence to impair their judgment.
The Institute of Internal Auditors (IIA) - Code of Ethics.

In the context of an assurance engagement, the auditor determines the scope of the engagement during the planning phase, which includes identifying the specific areas to be reviewed. In this case, if the engagement included a review of the security and privacy of payroll records, it means that during the planning phase, the auditor identified this area as part of the engagement scope. This step is crucial to ensure that the engagement objectives are met and that all relevant risks and controls are evaluated.
The IIA Standards: Standard 2200 - Engagement Planning: "Internal auditors must develop and document a plan for each engagement, including the engagement's objectives, scope, timing, and resource allocations." The IIA Practice Guide: "Engagement Planning: Establishing Objectives and Scope": Emphasizes the importance of defining the scope during the planning phase.