According to IIA standards, if nonconformance with the Standards affects the internal audit activity's ability to fulfill its professional responsibilities or meet stakeholder expectations, the internal audit activity should disclose the nonconformance and its impact. This is essential for maintaining transparency and accountability, ensuring that all stakeholders are informed of the internal audit's effectiveness and areas needing improvement.
IIA Standard 1322 - Disclosure of Nonconformance, which outlines requirements for disclosing the results of quality assurance and improvements, particularly concerning nonconformance.

By not raising an audit finding about the organization failing to make a legally required disclosure, the internal auditor violated the principle of Integrity. This principle requires auditors to perform their work honestly, diligently, and responsibly. Ignoring a legal requirement compromises the auditor's integrity, as it involves a deliberate omission of relevant facts.
* Option A: Objectivity involves maintaining impartiality, which is related but not directly relevant to this situation.
* Option C: Proficiency pertains to having the necessary knowledge and skills.
* Option D: Confidentiality involves respecting the value and ownership of information received.
IIA Code of Ethics: Integrity.
IIA Standards of Professional Practice.

To promote the independence of the internal audit activity, it is required that the chief audit executive reports functionally to the board. This structural alignment helps ensure that the internal audit function is not unduly influenced by management, which might be the subject of audits, and can freely report on its findings and recommendations without fear of reprisal.
The IIA's International Standards for the Professional Practice of Internal Auditing on independence and objectivity.

The first step for a newly hired chief audit executive (CAE) to build and maintain the proficiency of the internal audit activity should be to incorporate the basic criteria of internal audit competency into job descriptions. This foundational step ensures that all current and future hires are aligned with the required skills and competencies needed for effective internal audit functions. It sets a clear expectation of skills and knowledge right from the recruitment stage, thereby facilitating the development and maintenance of a competent audit team.
The Institute of Internal Auditors (IIA) - Practice Guides on Talent Management

In assurance engagements, it is standard practice for internal auditors to prepare and issue a written report upon completion. This report includes the results of the engagement and is issued to the client or the party that requested the engagement. This practice ensures transparency, accountability, and provides the client with necessary information to make informed decisions.
The Institute of Internal Auditors (IIA) - International Standards for the Professional Practice of Internal Auditing