The most likely reason for an internal auditor failing to identify transactions between the parent organization and a subsidiary is a lack of understanding of the organization. Understanding the organizational structure, including relationships between parent and subsidiary entities, is crucial for identifying and evaluating intercompany transactions. A thorough knowledge of the organization's operations, financial arrangements, and business processes enables auditors to recognize and properly assess such transactions during their audit engagements.
The Institute of Internal Auditors (IIA) Standards, specifically Standard 1210 - Proficiency.
IIA's International Professional Practices Framework (IPPF).
"Internal Auditing: Assurance & Advisory Services" by IIA, Chapter on Understanding the Business and Audit Planning.