1.3 Internal Audit Ethics - Introduction and Principles

In what 2 ways does the Code of Ethics extend beyond the definition of Internal Auditing?

1. Provides principles that are relevant to the profession and practice of internal auditing. 2. Rules of Conduct that describe behavior norms expected of internal auditors.

Review Question #7 - In complying with The IIA's Code of Ethics, an Internal Auditor should: A. Use individual judgment in the application of the principles set forth in the Code. B. Respect and contribute to the objectives of the organization even if it is engaged in illegal activities. C. Go beyond the limitation of personal technical skills to advance the interest of the organization. D. Primarily apply the competency principle in establishing trust.

Answer A is correct. Required: The action complying with The IIA's Code of Ethics. Discussion: The IIA's Code of Ethics includes principles that internal auditors are expected to apply and uphold. They are interpreted by the Rules of Conduct, behavior norms expected of internal auditors. That a particular conduct is not mentioned in the Rules of Conduct does not prevent it from being unacceptable or discreditable. Consequently, a reasonable inference is that individual judgment is necessary in the application of the principles and the Rules of Conduct. Answer B is incorrect. An internal auditor "shall not knowingly be a party to any illegal activity." Furthermore, an internal auditor is bound to respect and contribute only to the legitimate and ethical objectives of the organization. Answer C is incorrect. Internal auditors "shall engage only in those services for which they have the necessary knowledge, skills, and experience." Answer D is incorrect. Applying and upholding the integrity principle is the means by which an internal auditor establishes trust as a basis for reliance on his or her judgment.

Review Question #8 - An internal auditor who encounters an ethical dilemma not explicitly addressed by the IIA's Code of Ethics should always: A. Seek counsel from an independent attorney to determine the personal consequences of potential actions. B. Take action consistent with the principles embodied in The IIA's Code of Ethics. C. Seek the counsel of the audit committee before deciding on an action. D. Act consistently with the employing organization's code of ethics even if such action would not b e consistent with The IIA's Code of Ethics.

Answer B is correct. Required: The action that must be taken by an internal auditor regarding an ethical dilemma not explicitly addressed by The IIA's Code of Ethics. Discussion: The IIA's Code of Ethics is based on principles relevant to the profession and practice of internal auditing that internal auditors are expected to apply and uphold: integrity, objectivity, confidentiality, and competency. Furthermore, the Code states that particular conduct may be unacceptable or discreditable even if it is not mentioned in the Rules of Conduct. Answer A is incorrect. The auditor must act consistently with the spirit of the IIA's Code of Ethics. It is not practical to seek the advice of legal counsel for all ethical decisions. Moreover, unethical behavior may not be illegal. Answer C is incorrect. It is not feasible to seek the audit committee's advice for all potential dilemmas. Furthermore, the advice might not be consistent with the profession's standards. Answer D is incorrect. If the organization's standards are not consistent with, or as high as, the profession's standards, the internal auditor should abide by the latter.

Rules of Conduct - Matching - Integrity, Objectivity, Confidentiality, or Competency? Internal auditors apply the knowledge, skills, and experience needed in the performance of internal audit services.

Competency

Rules of Conduct - Matching - Integrity, Objectivity, Confidentiality, or Competency? Internal auditors respect the value and ownership of information they receive and do not disclose information without appropriate authority unless there is a legal or professional obligation to do so.

Confidentiality

True or False. The Definition of Internal Auditing is not incorporated into the introduction of the Code of Ethics.

False

The term "Internal Auditors" includes who?

Institute members, recipients of or candidates for IIA professional certifications, and those who perform internal audit services within the definition of Internal Auditing.

Rules of Conduct - Matching - Integrity, Objectivity, Confidentiality, or Competency? The integrity of internal auditors establishes trust and thus provides the basis for reliance on their judgment.

Integrity

Why is the Code of Ethics necessary?

Internal Auditing is founded on trust placed in its objective assurance about governance, risk management, and control.

Rules of Conduct - Matching - Integrity, Objectivity, Confidentiality, or Competency? Internal auditors exhibit the highest level of professional objectivity in gathering, evaluating, and communicating information about the activity or process being examined. Internal auditors make a balanced assessment of all the relevant circumstances and are not unduly influenced by their own interests or by others forming judgments.

Objectivity

True or false. Violations of the Code of Ethics should be reported to the IIA board of directors.

True

Who does the Code of Ethics apply to?

all organizations and persons who perform IA services, not just CIAs and members of the IIA